Special Report No 35 // 2016#The use of budget support to improve domestic revenue mobilisation in sub-Saharan Africa #(pursuant to Article 287(4), second subparagraph, TFEU)
Date: 2016-12-13
Institutions: European Court of Auditors
Subjects: EU aid, budgetary resources, development aid, financial aid, revenue, sub-Saharan Africa, tax collection

EN 

2016 

NO 35

Special Report  The use of budget support 

to improve domestic 
revenue mobilisation in 
sub-Saharan Africa

EUROPEAN
COURT
OF AUDITORS

 
EUROPEAN COURT OF AUDITORS 
12, rue Alcide De Gasperi 
1615 Luxembourg 
LUXEMBOURG

Tel. +352 4398-1
Enquiries: eca.europa.eu/en/Pages/ContactForm.aspx
Website: eca.europa.eu
Twitter: @EUAuditors

More information on the European Union is available on the internet (http://europa.eu).

Luxembourg: Publications Office of the European Union, 2017

Print 
PDF 
EPUB 

ISBN 978-92-872-6804-4 
ISBN 978-92-872-6852-5 
ISBN 978-92-872-6796-2 

ISSN 1831-0834 
ISSN 1977-5679 
ISSN 1977-5679 

doi:10.2865/73167 
doi:10.2865/965701 
doi:10.2865/491435 

QJ-AB-16-036-EN-C
QJ-AB-16-036-EN-N
QJ-AB-16-036-EN-E

© European Union, 2017
Reproduction is authorised provided the source is acknowledged.

Printed in Luxembourg

EN 

2016 

NO 35

Special Report

The use of budget support 
to improve domestic 
revenue mobilisation in 
sub-Saharan Africa

(pursuant to Article 287(4), second subparagraph, TFEU)

Audit team

02

The ECA’s special reports set out the results of its performance and compliance audits of specific budgetary areas or 
management topics. The ECA selects and designs these audit tasks to be of maximum impact by considering the risks 
to performance or compliance, the level of income or spending involved, forthcoming developments and political and 
public interest.

This performance audit was produced by Chamber III – headed by ECA Member Karel Pinxten - which specialises in 
external action, security and justice spending areas. The audit was led by ECA Member Danièle Lamarque, supported by 
Stéphanie Girard, Attaché of private office; Alejandro Ballester Gallardo, Principal audit manager; Piotr Zych, Head of task; 
Karel Meixner and Helka Nykaenen, Auditors.

From left to right: S. Girard, H. Nykaenen, D. Lamarque, A. Ballester Gallardo, P. Zych, K. Meixner.

Contents

03

Paragraph

Abbreviations

I-VIII 

Executive summary

1-14 

Introduction

1-2 

3 

4-7 

Domestic revenue mobilisation is important for sustainable development

DRM is a priority for the international development community

The EU is committed to supporting DRM

8-14 

DRM is one of the key development challenges addressed with budget support

15-18 

Audit scope and approach

19-67  Observations

19-38 

The Commission’s new approach had led to better assessment requirements of DRM in partner 
countries, but these were not yet comprehensively implemented in practice

20-31 

The Commission did not assess certain key aspects of DRM referred to by the guidelines

32-38 

39-59 

40-49 

50-57 

The Commission’s risk management framework for budget support did not allow for a comprehensive 
assessment of the risks associated with DRM

The effectiveness of budget support conditions, policy dialogue and capacity development was 
undermined by design weaknesses and challenging local circumstances

The Commission did not use DRM-specific conditions in most of its budget support contracts; when applied, 
they were not always relevant

Policy dialogue was generally well coordinated, but its effectiveness as a tool for DRM support was 
undermined by weak strategic focus and challenging local circumstances

58-59 

The capacity development component of budget support contracts seldom targeted DRM

60-67 

The Commission did not have appropriate tools to provide evidence that the EU budget support 
contributed to improve DRM in partner countries

 
Contents 

04

68-76 

Conclusions and recommendations

Annex I  —  Budget support as a share of total bilateral ODA commitments

Annex II  —  Countries and budget support contracts selected for the audit

Replies of the Commission and the EEAS

 
 
 
Abbreviations

05

ACP: African, Caribbean and Pacific Group of States

BEPS: Base erosion and profit shifting

DCI: Development Cooperation Instrument

DRM: Domestic revenue mobilisation

EDFs: European Development Funds

EITI: Extractive Industries Transparency Initiative

ENP: European Neighbourhood Policy

GDP: Gross domestic product

GNI: Gross national income

IMF: International Monetary Fund

IPA: Instrument for Pre-accession Assistance

OCTs: Overseas countries and territories

ODA: Official development assistance

OECD: Organisation for Economic Cooperation and Development

PEFA: Public Expenditure and Financial Accountability programme

PFM: Public financial management

RMF: Risk Management Framework

SIDS: Small Island Development States

TADAT: Tax Administration Diagnostic Assessment Tool

Executive summary

06

I
Domestic revenue mobilisation (DRM) refers to the generation of government revenue from domestic resources, 
from tax or non-tax sources. Improving DRM of developing countries is a crucial factor in their sustainable develop-
ment; as such it has become a priority of EU development policy. The EU supports DRM in these countries through 
several aid modalities, including budget support. Approximately 20 % of EU development funding is channelled 
through budget support, sub-Saharan Africa being the largest recipient. Improved DRM was one of the five key 
development challenges addressed by the Commission’s new approach to budget support, adopted in 2012.

II
Through this audit, we examined whether the Commission effectively used budget support contracts to support 
DRM in low- and lower-middle-income countries in sub-Saharan Africa. We examined in particular the Commission’s 
assessment of partner countries´ revenue policies and administration, the use of budget support conditionality, 
policy dialogue and capacity development. We also examined whether the Commission can show, through the 
available monitoring indicators and evaluations, the contributions made by this form of aid to improve DRM.

III
We found that the Commission’s new approach increased the potential of budget support to reinforce DRM, but 
implementation weaknesses prevented that potential from being fully exploited. We therefore conclude that the 
Commission has not yet effectively used budget support contracts to support DRM.

IV
The Commission gave insufficient consideration to DRM when designing its budget support operations. While it car-
ried out a systematic assessment of the partner countries’ revenue policies and administration in coordination with 
other donors this was not always comprehensively done. Country assessments are fundamental to the design of 
budget support, as they help the Commission identify the critical issues to be addressed through the disbursement 
conditions, capacity development and policy dialogue that it deploys alongside funding. However, the assessments 
we audited did not cover some essential aspects of fiscal policy and administration. Furthermore, key risks related 
to tax exemptions and to the collection and transfer of taxes and non-tax revenues from natural resources were not 
evaluated.

Executive summary 

07

V
The Commission had made the disbursement of budget support funds conditional on the fulfilment of specific 
DRM reforms in only five of the 15 budget support contracts audited. We also found that these conditions did not 
always effectively promote DRM reforms, as they were either too easily achievable or unenforceable, thus reducing 
the incentive for partner countries to engage in reform. Overall, insufficient use was made of DRM conditions in all 
types of budget support contracts, which does not square with the central role supposedly assigned to DRM.

VI
Policy dialogue in the area of DRM was more focused when it was accompanied by specific conditions or indicators, 
since identifying, negotiating and, subsequently, monitoring these conditions necessitated extensive discussion 
with the partner countries. However, difficult country circumstances meant that policy dialogue did not take place 
regularly. The Commission did not develop strategies for structuring its policy dialogue around concrete DRM issues 
including, for example, fixed priorities, objectives, interlocutors and dates.

VII
The EU’s budget support included very little funding to address capacity needs: just 0.2 % of the total value of the 
audited contracts. Finally, the audit revealed a lack of appropriate monitoring tools to assess the extent to which 
budget support contributed to overall improvements in DRM.

VIII
We make a number of recommendations for the Commission to strengthen its DRM assessments and risk analysis, 
the use of DRM-specific disbursement conditions, capacity development support and policy dialogue, and the 
evaluation of budget support to improve DRM.

Introduction

08

Domestic revenue mobilisation is important for 
sustainable development

01 
Poverty reduction and sustainable development depend on economic growth 
and investment, but also on the provision of a wide range of welfare services — 
such as education, public infrastructure and health care. These services cost more 
money than can be provided by development aid alone. They need to be cov-
ered by domestic revenue, including taxes and revenue from the exploitation of 
natural resources (such as access royalties and extraction dividends), which are by 
far the biggest source of financing available to governments1. Increased domestic 
revenue mobilisation (DRM) reduces dependence on development aid, leads to 
improvements in public governance, since taxpayers tend to hold their govern-
ments accountable, and is central to state-building.

02 
Developing countries, especially low- and lower-middle-income economies2, face 
significant challenges in revenue mobilisation. Their tax-to-GDP3 ratios range 
from 10 to 20 %, as opposed to 25 to 40 % in developed countries 4. They face 
particular challenges that affect the feasibility of raising taxes and other revenue: 
widespread poverty and illiteracy, hard-to-tax groups in subsistence agriculture 
and the informal sector, problematic accounting in the private sector, deficient 
rule of law and a high incidence of corruption, and weak administrative capacity5. 
The effectiveness of national tax systems and DRM efforts may be further under-
mined by the presence of a narrow tax base and an imbalance between direct 
and indirect taxation, as well as costly tax incentives and derogations, particularly 
in resource-rich countries.

1 

2 

3 

4 

The total revenue of a country 
consists of tax revenue, 
non-tax revenue and central 
bank profit. The main 
components of tax revenue 
are direct taxes (e.g. income 
tax), indirect taxes (e.g. VAT), 
excise duties (on, for example, 
tobacco) and customs duties. 
Non-tax revenue comprises 
royalties paid for access to 
natural resources (e.g. oil, gold, 
diamonds) and extraction 
dividends. Central bank profit 
mainly originates from issuing 
notes and coins for circulation 
in the economy.

Low-income economies are 
defined as those with a gross 
national income per capita, 
calculated using the World 
Bank Atlas method, of no 
more than 1 045 USD; 
middle-income economies 
have a GNI per capita of more 
than 1 045 USD but less than 
12 736 USD; high-income 
economies have a GNI per 
capita of 12 736 USD or more. 
Lower-middle-income and 
upper-middle-income 
economies are separated at 
a GNI per capita of 4 125 USD. 
See http://data.worldbank.
org/about/country-and-lending- 
groups

The tax-to-GDP ratio is the 
ratio of tax collected to 
national gross domestic 
product (GDP).

See OECD, ‘Governance, 
Taxation and Accountability: 
Issues and Practices’ 2008, 
pp. 21-22.

5 

Idem.

Introduction 

DRM is a priority for the international development 
community

03 
DRM has been discussed in many international fora over the past 13 years. The 
need to raise domestic revenue through efficient and effective tax systems was 
one of the fundamental objectives of the 2002 Monterrey Consensus on Financ-
ing for Development6. The follow-up conference in Doha7 in 2008 stressed the 
need for transparency of public finance management, more efficient tax col-
lection, a broader tax base and greater action on tax evasion and illicit financial 
flows8. The Rio+20 conference in 20129 and the Addis Ababa conference10 in July 
2015 also emphasised DRM as a top priority in the context of the post-2015 devel-
opment agenda.

The EU is committed to supporting DRM

04 
In 2009 the European Commission issued a communication promoting good 
governance in the tax area11. In a follow-up document in 2010, it suggested ways 
in which the EU could assist developing countries in building efficient, fair and 
sustainable tax systems and administrations12. A new development policy frame-
work adopted in 201113 centred EU action in eight areas, among them tax policy 
and administration and natural resources14.

05 
In 2015 the European Parliament also underlined15 the importance of revenue 
mobilisation in developing countries and pointed at challenges related to tax 
avoidance, tax evasion and illicit financial flows. It recommended a set of actions, 
such as strengthening financial and technical assistance for developing countries 
and regional tax administration frameworks, and the adoption of principles for 
the negotiation of tax treaties.

09

6 

7 

International Conference on 
Financing for Development, 
Monterrey, Mexico, 
March 2002; see http://www.
un.org/esa/ffd/monterrey/
MonterreyConsensus.pdf

Follow-up International 
Conference on Financing for 
Development to Review the 
Implementation of the 
Monterrey Consensus, Doha, 
Qatar, November/December 
2008.

8  While acknowledging the 

responsibility of each country 
for its own tax system, the 
conference declaration 
underlined the responsibilities 
of the international 
community to support 
developing countries’ efforts 
by strengthening technical 
assistance and enhancing 
international cooperation and 
participation in international 
tax matters, including in the 
area of double taxation.

9  United Nations Conference on 
Sustainable Development 
(UNCSD), Rio de Janeiro, 
20-22 June 2012.

10  At the Third Financing for 

Development Conference in 
Addis Ababa, July 2015, 
donors agreed on the ‘Addis 
Tax Initiative’, which aims to 
foster support for tax reforms 
in developing countries and 
has a particular focus on 
international tax issues.

11  COM(2009) 201 final of 28 April 

2009 ‘Promoting Good 
Governance in Tax Matters’.

12  COM(2010) 163 final of 21 April 
2010 ‘Tax and Development — 
Cooperating with Developing 
Countries on Promoting Good 
Governance in Tax Matters’.

13  COM(2011) 637 final of 

13 October 2011 ‘Increasing 
the impact of EU 
Development Policy: an 
Agenda for Change’.

14 

In the tax policy field the EU 
undertook to continue 
promoting fair and 
transparent domestic tax 
systems. In the area of natural 
resources, it undertook to 
scale up its support for 
oversight processes and 
bodies and continue to back 
governance reforms 
promoting sustainable 
exploitation of natural 
resources and transparent 

Introduction 

06 
The EU’s political commitment to supporting DRM in developing countries is 
reflected in the legal basis for the European Development Funds (EDFs) and the 
Development Cooperation Instrument (DCI)16 financed by the general budget 
of the EU. As regards the EDFs, the Cotonou agreement17, which is the current 
framework for the EU’s relations with African, Caribbean and Pacific (ACP) States, 
includes cooperation measures focusing on the improvement and strengthening 
of public finance and fiscal management. The regulation establishing the DCI18 
for the 2014-2020 period commits the EU to promoting mobilisation of domestic 
revenue through the reinforcement of partner countries’ fiscal policy with the 
purpose of reducing poverty and aid dependence.

07 
An overview of the main regional and international initiatives and funding modes 
through which the Commission supports DRM in partner countries is presented 
in Figure 1.

10

management.

15  European Parliament, ‘Report 
on tax avoidance and tax 
evasion as challenges for 
governance, social protection 
and development in 
developing countries’ 
(2015/2058(INI), 2015.

16  The DCI provides aid through 

(i) geographic programmes 
with partner countries in Latin 
America, Asia, Central Asia, the 
Middle East and South Africa 
to support actions in a wide 
range of areas; and (ii) 
thematic programmes.

17  Agreement amending for the 
second time the Partnership 
Agreement between the 
members of the African, 
Caribbean and Pacific Group 
of States, of the one part, and 
the European Community and 
its Member States, of the other 
part, signed in Cotonou on 
23 June 2000.

18  Article 3(8)(e) of Regulation 
(EU) No 233/2014 of the 
European Parliament and of 
the Council of 11 March 2014 
establishing a financing 
instrument for development 
cooperation for the period 
2014-2020 (OJ L 77, 15.3.2014, 
p. 44).

Introduction 

11

1 Commission participation in support for DRM in sub-Saharan Africa
e
r
u
g
i
F

Regional initiatives

EU support

-  African Tax Administration Forum (ATAF)
-  Centre de rencontres et d’études des dirigeants des 

administrations fiscales (CREDAF)
IMF regional technical assistance centres

- 

Partner countries’ domestic revenue mobilisation

-  Budget support
-  Projects

Cooperative initiatives

-  U.N. Tax Committee
-  Tax Policy and Administration Topical Trust Fund (IMF)
-  Public Expenditure and Financial Accountability 

Assessment (PEFA)
International Tax Compact (ITC)
International Tax Dialogue (ITD)

- 
- 
-  The Tax administration Diagnostic Assessment Tool 

(TADAT)

-  Base Erosion and Profit Shifting (OECD)
-  Tripartite initiative on transfer pricing (OECD, World Bank,

European Commission)

Source: European Court of Auditors.

Natural resource initiatives targeting 
third-countries

-  The Extractive Industries Transparency Initiative (EITI)
-  Topical Trust Fund on Managing Natural Resources Wealth 

(IMF)

-  Forest Law Enforcement, Governance and Trade (FLEGT)
-  Extractives Global Programmatic Support (World Bank)

 
 
 
 
 
12

19  European Commission, 

‘Budget support guidelines’, 
September 2012.

20  European Commission, 

‘Budget support financial 
implementation, risk 
assessment, and selected 
poverty, macroeconomic and 
fiscal results’, 2015.

Introduction 

DRM is one of the key development challenges 
addressed with budget support

08 
The Commission defines budget support as the transfer of financial resources 
to the national treasury of a partner country, following compliance by the latter 
with agreed conditions for payment. The funding thus received enters the part-
ner country’s budget and can consequently be used in accordance with its public 
financial management rules19. Besides financial transfers, budget support has 
three other components: policy dialogue with the partner country, performance 
assessment based on disbursement conditions, and capacity development. With 
these three components the Commission addresses specific development chal-
lenges (see Box 1), while financial transfers provide the means and incentives for 
partner countries’ governments to engage in the necessary reforms.

09 
The EU channels a substantial amount of its development funding through budg-
et support. The latest available information (see Annex I) shows that the share 
taken by budget support commitments of the EU’s total official development 
aid varied between 8.6 % and 18.2 % during 2010-2014, while the average for the 
EU Member States ranged from 1.62 % to  2.77 % over the same period. Budget 
support represents approximately 20 % of EU disbursements in the development 
cooperation field20.

1
x
o
B

Key development challenges addressed through budget support

(1)  Promoting human rights and democratic values.

(2) 

Improving financial management, macroeconomic stability, inclusive growth and the fight against cor-
ruption and fraud.

(3)  Promoting sector reforms and improving sector service delivery.

(4)  State building in fragile states, and addressing the specific development challenges of small island devel-

opment states (SIDS) and overseas countries and territories (OCTs).

(5) 

Improving DRM and reducing dependence on aid.

Source: European Commission: Budget support guidelines (September 2012).

 
Introduction 

13

10 
In 2011 the Commission published a communication on ‘The future approach to 
EU budget support to third countries’21 in which it called for a stronger emphasis 
on DRM in the programming of EU budget support. The Council subsequently 
endorsed22 the revised approach. On that basis, the Commission adopted new 
budget support guidelines in September 2012, which entered into force on 
1 January 2013. According to the guidelines, DRM is ‘the centre-piece for sustain-
able financing of development’ and one of the five key development challenges to 
be addressed by budget support (see Box 1).

21  COM(2011) 638 final of 
13 October 2011.

22  Council conclusions on ‘The 

future approach to EU budget 
support to third countries’, 
3166th Foreign Affairs Council 
meeting, Brussels, 
14 May 2012.

11 
The Commission provides three forms of budget support contracts (see Box 2).

2 Forms of budget support provided by the European Commission23
x
o
B

1. Good governance and development contracts

Used to support core government systems, accountability and national reforms. Only countries deemed to be 
committed to fundamental values24 can receive this form of budget support. Altogether, 17 out of 78 ongoing 
contracts (22 %) in sub-Saharan Africa are good governance and development contracts.

2. Sector reform contracts

This form of budget support aims to improve governance and service delivery in the selected sector. Most of 
the ongoing budget support contracts in sub-Saharan Africa are sector reform contracts (44 out of 78 (56 %)).

3. State-building contracts

Used to ensure vital state functions in countries in fragile situations, or to support processes of transition to 
democratic governance. State-building contracts represent 22 % of ongoing budget support contracts in sub-
Saharan Africa.

23  ECA analysis, based on data provided by the Commission (see paragraph 13 and Table 1).

24  Article 21 of the Treaty on European Union: ‘democracy, the rule of law, the universality and indivisibility of human rights and fundamental 

freedoms, respect for human dignity, the principles of equality and solidarity, and respect for the principles of the United Nations Charter and 
international law.’

 
Introduction 

12 
To be eligible for budget support, partner countries must demonstrate: (i) rel-
evance, credibility and satisfactory progress in the implementation of national/
sector policies and reforms that favour sustainable growth and poverty reduc-
tion; (ii) a stability-oriented macro-economic policy; (iii) a sufficiently transparent, 
reliable and effective public financial management system (PFM); and (iv) trans-
parency and oversight of the budget25. According to the new guidelines, DRM is 
to be considered when assessing the macroeconomic and PFM eligibility criteria.

13 
At the end of 2015, there were 261 ongoing budget support contracts in 88 coun -
tries (see Table 1)26. Overall, sub-Saharan Africa is the biggest beneficiary of 
budget support (commitments amounting to 6 billion euros).

14 
Budget support contracts signed since the entry into force of the new budget 
support guidelines were worth a total of 4.9 billion euros in April 2016. Of this 
amount, 1.7 billion euros concerned sub-Saharan Africa. Due to the specificities 
of this form of aid (see paragraph 8) it is not possible to directly attribute the 
amount of budget support provided for DRM.

14

25  The conditions for granting 
direct budgetary assistance 
are governed by Article 61(2) 
of the Cotonou Agreement for 
the EDFs and by Common 
Implementing Rules (Title II, 
Article 4(2)) and the Financial 
Regulation (Article 186 and 
Article 258 of the Rules of 
Application) for the general 
budget.

26  Additionally, 3 commitments 
in the framework of the 
Instrument for the Pre-
Accession were decided at the 
end of 2015. These 
commitments were not taken 
into account in Table 1 as the 
contracts were not running in 
2015 and no disbursements 
were made.

1 Ongoing budget support contracts at the end of 2015 by region
e
l
b
a
T

Types of budget support contracts

Region

Number of 
countries

Number of 
budget sup-
port contracts

Sector reform 
contracts1

Good govern-
ance and 
development 
contracts2

State Building 
contracts

Sub-Saharan Africa

European Neighbourhood Policy

Asia, Pacific and OCTs

Caribbean and Latin America

Instrument for Pre-accession 
Assistance

Total

32

10

28

17

1

88

78

80

53

49

1

261

44

75

45

46

1

211

81 %

17

1

7

2

0

27

10 %

17

4

1

1

0

23

9 %

Total budget 
support 
commitment
(million euro)

5 948.0

3 777.6

1 657.6

1 260.7

40.0

12 683.9

Includes sector budget support.
Includes general budget support.

1 
2 
Source: European Court of Auditors based on figures provided by the European Commission.

 
Audit scope and approach

15

27  We did not assess the 
advantages and 
disadvantages of budget 
support compared with other 
aid modalities.

15 
In the light of the EU’s development priority of support for DRM, and the impor-
tance of budget support in this context, we set the following audit question: ‘Did 
the Commission effectively use budget support contracts to support DRM in low- 
and lower-middle-income countries in sub-Saharan Africa?’ The audit focused on 
three key areas:

(a)  Did the Commission adequately assess partner countries´ revenue policies 

and administration in coordination with other donors?

(b)  Did the Commission use budget support conditionality, policy dialogue and 

capacity development to support DRM effectively?

(c)  Are there clear indications that EU budget support made a positive contribu-

tion to DRM in the partner countries?

16 
The audit covered budget support contracts signed after 1 January 2013, i.e. after 
the entry into force of the new budget support approach27.

17 
The audit involved an analytical review of 15 budget support contracts amount-
ing to 1.25 billion euros (24.5 % of the value of all contracts signed since 2013) in 
nine low- and lower-middle-income countries in sub-Saharan Africa: Cape Verde, 
Central African Republic, Mali, Mauritania, Mozambique, Niger, Rwanda, Senegal 
and Sierra Leone (see Annex II). For these contracts we examined the compre-
hensiveness and consistency of the Commission’s assessments of DRM reforms, 
policy and administration in the countries concerned, as well as the identification 
and implementation of DRM-related capacity development and policy dialogue 
and the setting of specific conditions for support. Lastly, we reviewed the avail-
able statistics and evaluations showing the progress achieved by the nine coun-
tries in the area of DRM.

18 
The audit included visits to three countries, each of which had concluded a dif-
ferent type of budget support contract with the Commission: Cape Verde (Good 
Governance and Development Contract), Rwanda (Sector Reform Contract) and 
Sierra Leone (State Building Contract). During these visits we interviewed Com-
mission staff and representatives of national authorities and other donors/stake-
holders, including the International Monetary Fund, the World Bank and national 
audit offices. We also met with the UK Department for International Develop-
ment in London. The audit was carried out between October 2015 and April 2016.

Observations

16

The Commission’s new approach had led to better 
assessment requirements of DRM in partner countries, 
but these were not yet comprehensively implemented 
in practice

19 
This section addresses whether the Commission had analysed DRM as referred 
to by the guidelines when designing its budget support operations. In particu-
lar, we examined whether the Commission had adequately assessed the partner 
countries´ revenue policies and administration, as well as the related risks, in 
coordination with other donors.

The Commission did not assess certain key aspects of DRM 
referred to by the guidelines

20 
We analysed whether the Commission’s guidelines provided for a comprehensive 
assessment of the DRM situation of partner countries. We then examined wheth-
er the DRM assessments available for the 15 audited budget support contracts 
actually covered all the aspects named in the guidelines.

21 
The Commission’s new budget support guidelines require an examination of the 
DRM situation of partner countries when assessing the macroeconomic stability 
and public finance management eligibility criteria (see paragraph 12). This assess-
ment should be comprehensive since the Commission also uses it to identify and 
prioritise the key DRM challenges and weaknesses to be addressed through the 
various budget support components (i.e. policy dialogue, specific conditions and 
capacity development).

22 
In our view, the framework for DRM assessment provided by the guidelines was 
comprehensive in its scope. This was an improvement on the previous approach, 
when the Commission did not systematically examine the DRM of partner coun-
tries when designing its budget support operations. According to the current 
guidelines, the Commission’s assessment of macroeconomic stability should in-
clude the efforts made by the country concerned to strengthen DRM, in particu-
lar any fiscal reforms and their expected impact, while tax administration should 
be assessed under the PFM eligibility criterion.

17

28  The PEFA framework assesses 
and reports on the strengths 
and weaknesses of PFM, 
currently using 
31 performance indicators 
that are sub-divided into 94 
‘dimensions’. The performance 
of each indicator and 
dimension is measured 
against a four point ordinal 
scale from A to D.

29  The Tax Administration 

Diagnostic Assessment Tool 
(TADAT) is a means of 
providing an objective and 
standardised assessment of 
the relative strengths and 
weaknesses of the 
administration and of 
a country’s tax system. TADAT 
is supported by multiple 
international development 
partners and institutions, 
including the European 
Commission, Germany, the 
IMF, Japan, the Netherlands, 
Norway, Switzerland, the 
United Kingdom and the 
World Bank. TADAT pilot 
assessments were conducted 
in 2013-2015 in 17 countries — 
including Mozambique and 
Rwanda from our sample.

30  The analysis of tax effort 

provides broad guidance for 
tax reforms in countries with 
various levels of taxable 
capacity and revenue intake.

Observations 

23 
The Commission’s assessments were based on a wide range of diagnostic tools 
and reports. They referred to, and were in most cases based on, IMF and World 
Bank reports, they mentioned the development of PEFA scores28, and they reiter-
ated the main strengths and weaknesses of revenue systems as indicated in 
TADAT29 reports where available. Other sources were government documents, 
national statistics and reports issued by national audit offices. The assessment 
findings largely corresponded with the assessments of other donors and stake-
holders (see paragraph 56).

DRM aspects to be analysed under the macroeconomic assessment

24 
The Commission’s assessments described recent trends in revenue levels, the 
progress made in implementing fiscal reforms, and current reform planning (in-
cluding the main objectives set). Attention was also paid to the main weaknesses 
identified in PEFA and IMF reports.

25 
The assessments of all the audited countries therefore included a presentation of 
recent developments in revenue levels (tax-to-GDP ratio) and a comparison with 
peers (usually neighbouring countries). Although it is useful when presenting the 
overall situation of a country in terms of DRM and for purposes of comparison, 
the tax-to-GDP ratio is too general for any analysis of main challenges and needs. 
For this reason, the Commission guidelines provide for a more in-depth analysis, 
including a breakdown of taxes and other revenue, information on the overall 
cost and impact of tax exemptions and an estimate of tax effort.

26 
However, we found that, in practice, the Commission’s DRM assessments general-
ly lacked information on the aspects mentioned above, which are essential when 
assessing a country’s performance in terms of its ability to mobilise domestic rev-
enue. The tax effort, which indicates the extent to which a country exploits its tax 
potential30, was not estimated for any of the audited countries. Tax incentives (see 
paragraph 38) were mentioned as a challenge in four of the audited countries, 
but no assessment included an estimate of the total cost and potential effect of 
tax exemptions. This can be problematic in many developing countries, as the tax 
exemptions often distort competitiveness, limit tax revenue and may encourage 
corruption. The composition and the relevance of different types of taxes and 
other revenue, including revenue from natural resources, was presented in only 
four countries (Mauritania, Mozambique, Rwanda and Senegal), and the ratio of 
direct to indirect taxes was only given for Cape Verde, the Central African Repub-
lic and Sierra Leone.

18

31  E.g. the EITI, the Kimberley 
process and the OECD/G20 
Base Erosion and Profit 
Shifting (BEPS) Action Plan.

32 

Illicit Financial Flows, Report of 
the High Level Panel on Illicit 
Financial Flows from Africa, 
commissioned by the AU/ECA 
Conference of Ministers of 
Finance, Planning and 
Economic Development.

33  Only the Mauritania, 

Mozambique and Sierra Leone 
assessments mentioned the 
EITI, and the Central African 
Republic assessment analysed 
the suspension in 2013 of the 
EITI and the Kimberley 
process.

34  Transfer pricing describes all 

aspects of pricing 
arrangements between 
controlled (or related) legal 
entities.

35  BEPS Action Plan intends to 

tackle concerns over base 
erosion and profit shifting and 
perceived international tax 
avoidance techniques of 
high-profile multinationals.

Observations 

27 
Even if this information may not always be available in some countries, the Com-
mission’s assessments did not report on the absence of key DRM data. The fact 
that this information is missing is however significant, as it can be an indication 
of weak capacity of partner countries in this area, which the Commission could 
subsequently address through the various budget support components (see 
paragraph 8).

DRM aspects to be analysed under the PFM assessment

28 
The capacity of revenue bodies to mobilise domestic resources is also an aspect 
to be covered in the Commission’s assessments. In most cases the Commission 
examined the structure of administration or outlined government efforts to 
strengthen revenue agencies. However, no assessment included an analysis of 
the staffing or material needs constraining revenue administrations — despite 
this being referred to in the guidelines.

29 
Corruption diminishes a country’s revenue; in this regard, transparency of state 
revenue helps in tackling corruption. All the assessments mentioned existing or 
planned anti-corruption measures, and in most of the audited countries general 
transparency issues were also analysed. We found that the assessment of public 
access to information on tax legislation and tax incentives, which are important 
aspects of transparency, were carried out only in Mali and Mozambique.

30 
Another aspect often missing from the Commission’s assessments was that of 
international initiatives aimed at, among other things, boosting state revenue by 
tackling the leakage of funds through tax evasion, money laundering and other 
financial crimes31. Recent studies estimate that Africa loses more than 50 billion 
USD each year to illicit financial flows32. We found that, although the EU actively 
promotes these initiatives, the assessments did not systematically focus on the 
audited countries’ involvement33. The problems of transfer pricing34, legislation 
concerning foreign companies and the abuse of tax treaties (as discussed cur-
rently in the framework of the BEPS Action Plan35) were not addressed. Equally, 
the participation of partner country representatives in discussions and negotia-
tions at international level, which requires specific skills that are often non-exist-
ent in developing countries, were not a feature of the PFM and macroeconomic 
assessments.

Observations 

19

31 
Table 2 summarises the key aspects of DRM named by the guidelines as part of 
the PFM and macroeconomic stability assessments, and indicates to what degree 
they were actually covered by the assessments which we audited.

2 DRM aspects to be analysed in the framework of the PFM and macroeconomic 
e
l
b
a
T

stability assessments

DRM aspects required as part of the  
PFM assessment

Included in the  
audited assessments?

DRM aspects required as part of the  
macroeconomic stability assessment

Included in the  
audited assessments?

Fiscal policy in place, new measures, expected 
impact

Tax ratio (including and excluding natural 
resources) 
(see paragraph 26)

Efforts to strengthen DRM (improve ratio of 
domestic revenue to expenditure) 
(see paragraph 24)

Tax incentives (overall cost and impact of 
exemptions) 
(see paragraph 26)

Tax system — composition and relevance of 
various taxes 
(see paragraph 26)

Tax effort1 (estimate) 
(see paragraph 26)

Yes

Yes

Mostly

Partly

Partly

No

Main short- and medium-term challenges to the 
PFM system

Anti-corruption measures 
(see paragraph 29)

Assessment of government financial and organi-
sational capacity to mobilise domestic resources 
(see paragraph 28)

Strengthening tax administration 
(see paragraph 28)

Transparency and access to information 
(resource-rich countries) 
(see paragraph 29)

Internationally agreed tax standards and 
initiatives 
(see paragraph 30)

Publicly available info on legislation and tax 
incentives 
(see paragraph 29)

Assessment of human resources’ capacity to 
mobilise domestic resources 
(see paragraph 28)

Yes

Yes

Mostly

Mostly

Partly

Partly

No

No

1  Both with and without revenues from natural resources.
Source: European Court of Auditors.

 
Observations 

20

The Commission’s risk management framework for budget 
support did not allow for a comprehensive assessment of the 
risks associated with DRM

32 
The Commission’s approach to budget support includes a risk management 
framework that was specifically designed to identify risks linked to the achieve-
ment of budget support objectives. The framework is also an important tool for 
the design of budget support operations. It complements the assessments of 
revenue policies and administrations referred to in the previous section with an 
analysis of the associated risks.

36  Political risks; macroeconomic 
risks; developmental risks; 
PFM; corruption and fraud.

37  Question 38 (under heading 
4.2 ‘Controls in Revenue 
Collection and Budget 
Execution’): ‘What is the risk 
that taxes due are not properly 
assessed, collected and 
transferred to the Treasury in 
a timely manner?’

33 
We examined whether the prominent role of DRM in budget support was reflect-
ed in the Commission’s risk management framework. In particular, we analysed 
whether the Commission’s risk questionnaire appropriately covered the key risks 
linked to improving DRM.

34 
The risk management framework is based on a set of questions grouped under 
five headings36. Of the 44 questions in the risk questionnaire, one (question 38) 
related directly to revenue mobilisation37. Although this question is very relevant, 
as it encompasses the assessment, collection and timely transfer of taxes to the 
national treasury, the Commission’s assessments of the risks underlying the col-
lection and timely transfer of taxes were often incomplete.

35 
According to the questionnaire, replies to this question should be assessed on 
the basis of PEFA indicator PI-3, which compares actual domestic revenue with 
the budgeted amount. While this indicator allows an assessment of the risks re-
lated to the accuracy of revenue forecasts, it says nothing about the effectiveness 
of tax collection. Moreover, the questionnaire did not require the verification 
of other PEFA indicators, such as PI-14 (effectiveness of measures for taxpayer 
registration and tax assessment) and PI-15 (effectiveness in collection of tax pay-
ments), which do focus on the risks related to the assessment and collection of 
taxes.

21

38  The answer to question 38 in 
the Mozambique RMF 
mentions, among other 
things, that ‘PI3 does not fully 
cover Risk 38 (which also hints 
at the correct application of 
tax revenues, not just 
collecting the projected 
amounts)’.

39  DG International Cooperation 
and Development, ‘Budget 
support — financial 
implementation, risk 
assessment and selected 
macroeconomic and fiscal 
country results (pilot report)’, 
2013, p. 12.

40  For 2013 the figures were 

11.2 % and 17.6 % respectively. 
Source: IMF Country Report 
No 15/35, February 2015.

Observations 

36 
Consequently, indicators PI-14 and PI-15 were not taken into account to answer 
question 38 of the risk questionnaire in any of the audited countries. The fact that 
insufficient consideration was given to risks linked to DRM was noted in Febru-
ary 2015 in the Commission’s Mozambique assessment38. The Commission had 
already stated in its 2013 report on budget support that ‘surprisingly few Risk 
Management Frameworks reported risks related to tax collection’39. In only one 
of the nine audited countries (Sierra Leone) did the Commission assess the risks 
relating to DRM as high.

37 
Furthermore, question 38 refers to ‘taxes due’, but it does not cover the risk that 
non-tax revenue, such as royalties paid for access to natural resources and extrac-
tion dividends, is not properly assessed, collected and transferred to the treasury. 
In some of the audited countries, extractive revenue was nearly as high as tax 
revenue. For example, in Mauritania in 2012, extractive revenue was equivalent 
to 14.9 % of non-extractive GDP, while tax revenue accounted for 16.9 % of the 
same40.

38 
Another important risk factor related to the mobilisation of resources that is not 
considered in the current risk management framework is the extent and nature 
of tax exemptions. These instruments, which include tax incentives, tax holidays, 
tax credits, tax reductions, tax free zones, etc., have an impact on the level of 
revenue a country can collect, while also influencing choices about economic 
activities and the potential to attract foreign direct investment.

22

41  The key objectives of the 

macroeconomic assessment 
are: to analyse the main 
macroeconomic aggregates 
and identify potential sources 
of macroeconomic and debt 
instability; to assess existing 
macroeconomic and fiscal 
policies and their contribution 
to stabilising the 
macroeconomic framework in 
the short and medium term; to 
assess efforts to strengthen 
DRM; and to assess 
vulnerability to external 
shocks and efforts to 
strengthen macroeconomic 
resilience. The PFM 
assessment focuses on the 
main developments in the 
implementation of PFM 
reforms. The main tool to 
assess progress is the PEFA, 
covering the following PFM 
pillars: budget reliability; 
transparency of public 
finances; management of 
assets and liabilities; 
policy-based fiscal strategy 
and budgeting; predictability 
and control in budget 
execution; accounting and 
reporting; external scrutiny 
and audit.

Observations 

The effectiveness of budget support conditions, policy 
dialogue and capacity development was undermined 
by design weaknesses and challenging local 
circumstances

39 
Budget support is more than the transfer of funds to the partner country’s treas-
ury account. Equally important components of this form of aid are disbursement 
conditions and the associated performance indicators, as well as policy dialogue 
and capacity development activities implemented within the framework of 
budget support contracts. This section addresses whether the Commission used 
disbursement conditions, policy dialogue and capacity development effectively 
as part of its DRM support arrangements.

The Commission did not use DRM-specific conditions in most 
of its budget support contracts; when applied, they were not 
always relevant

40 
Conditions attached to the disbursement of budget support include four general 
eligibility conditions which have to be met before any disbursement of funds (see 
paragraph 12). Although two of these conditions (macroeconomic stability and 
PFM) require an assessment of the partner country’s progress with DRM reforms, 
they cover a much broader scope than DRM alone 41. This means that the DRM 
situation of a partner country does not necessarily play a key role in the Commis-
sion’s decision to disburse budget support if the overall macroeconomic and PFM 
situation is otherwise assessed as satisfactory.

41 
Disbursements may also be linked to the fulfilment of specific conditions. These 
are more frequently applied to the disbursement of variable tranches (see 
Table 3) and are usually translated into performance indicators and targets. To 
give governments an incentive to advance in the implementation of their re-
form agenda, or to improve their performance, the amounts disbursed from the 
variable tranches depend on the extent to which the targets have been reached. 
Therefore, the use of DRM specific conditions ensures a direct link between 
budget support payments and DRM reforms.

Observations 

23

3 Budget support eligibility and specific disbursement conditions
e
l
b
a
T

Eligibility conditions 
— must be complied with during the BS contract

Budget support 
payment

Fundamental values (human 
rights, democracy and the rule 
of law):
Different requirements depending 
on BS contract type, most strict 
requirements for Good Governance 
and Development BS contracts

Four eligibility criteria:
1.  relevant and credible public 

policies and reforms
2.  stability-oriented macro-

economic policy 

3.  sufficiently transparent, reliable 
and effective public financial 
management system

4.  transparency and oversight of 

the budget

Fixed tranche

Variable tranche

Source: European Court of Auditors.

Specific conditions

Specific conditions related to fixed tranches are less often 
used and require an achievement of the condition/target 
in full.

Example: Elaboration of a Performance Assessment 
Framework for the economic and social reform programme 
of the country.

Specific conditions related to variable tranches create in-
centives for improved performance and may allow partial 
payments in case indicators are not met in full.

Example: Increase the proportion of medium and large tax 
payers filing returns on time to at least 60 %.

42 
To avoid loss of policy focus, the Commission guidelines limit to eight the maxi-
mum number of indicators attached to a variable tranche 42. The indicators should 
be selected from those listed in the performance assessment framework agreed 
between development partners and partner countries, or derived from relevant 
national public policy documents, in cooperation with the authorities, if there is 
no performance assessment framework. We assessed the extent to which condi-
tions were used to support DRM and, where this was the case, whether they were 
relevant and incentivised governments to implement reforms. We also reviewed 
the arrangements made for verifying and reporting on compliance with the 
conditions.

42  See Budget support 
guidelines, p. 48.

43  COM(2011) 638 final, p. 6.

Use of DRM-specific disbursement conditions

43 
The Commission used DRM-related specific conditions in five of the 15 audited 
budget support contracts (see Table 4 and Annex II). These conditions, related to 
variable tranches, were set only in state-building contracts, which have a limited 
duration of 1 or 2 years. Thus the specific conditions focused on improving DRM 
in the short term and in the most fragile countries. This is not in line with the 
Commission’s stated aim43 of putting a stronger emphasis on DRM through good 
governance and development contracts in particular.

 
24

Conditional on DRM  

Million 
euro

3

16

6

3

5

33

%

7.5 %

7.4 %

4.6 %

8.8 %

6.3 %

6.6 %

Observations 

4 Budget support contracts with DRM specific conditions1
e
l
b
a
T

Variable tranches (million euro)

Budget sup-
port amount 
committed 
(million euro)

Country

Central African Republic

Mali

Niger

Sierra Leone

Sierra Leone

Grand total

FA signed

2017

2016

2015

2014

2013

40

216

130

34

80

500

2015

2015

2013

2013

2015

n/a

8

n/a

n/a

3

11

1

8

n/a

n/a

3

12

2

n/a

3

n/a

n/a

5

n/a

n/a

3

1

n/a

4

n/a

n/a

1

2

n/a

22

1  ECA/documentary review.
2  Details do not add up to total because of rounding.

Source: European Court of Auditors.

44 
The Commission’s most frequent argument for not using DRM-related conditions 
in its budget support contracts was that DRM was covered by other donors. How-
ever, we did not find evidence that this decision was supported by an assessment 
of the involvement of other donors in this area.

Relevance and incentive effect of DRM-specific conditions

45 
When the Commission used variable tranche conditions specifically targeting 
DRM, it did not select the conditions most relevant to the national context in 
three out of five contracts. In Sierra Leone, for example (see Box 3), the Commis-
sion focused its DRM specific conditions on administrative reforms at the reven- 
ue authority, and did not include conditions promoting essential new legislation 
which would have had a broader impact on DRM.

 
Observations 

25

3
x
o
B

DRM specific conditions not addressing the most relevant reforms

In Sierra Leone (2013-2015), the Commission used DRM specific conditions relating to the reduction of tax ar-
rears, the more timely filing of tax returns, public disclosure of revenue from extractive industries, submission 
of a National Minerals Authority bill to Parliament and publication of mining and exploration licences in an 
online repository.

In its 2013 budget support report the Commission noted that Sierra Leone was one of the countries with the 
most potential to increase tax revenue. However, except for tax arrears, the aim of the conditions used was to 
improve administrative procedures at the revenue authority and the public availability of data. These condi-
tions on their own do not directly increase the country’s domestic revenue.

During the same period, the Extractive Industries Revenue Bill, a piece of legislation which, according to the 
Commission and the IMF, contained policy reforms crucial to increasing domestic revenue from extractive ac-
tivities and natural resources, was ready but pending adoption by Parliament for years. The bill was presented 
to Parliament in 2013 but had still not been adopted by February 201644. According to the IMF45, the Public 
Financial Management (PFM) Bill stalled in Parliament, and as a result momentum for the establishment of the 
Natural Resource Revenue Fund has been lost.

The ongoing delays in the adoption of these bills suggest that stronger support from donors would have 
hastened proceedings. An evaluation of budget support for Sierra Leone during the 2002-2015 period also 
concluded that ‘there is also evidence that difficult revenue mobilisation decisions have been delayed’.

While the Commission cannot oblige a parliament to adopt legislation, it has not encouraged implementa-
tion of certain reforms written into the bills (a Natural Resource Revenue Fund and Single Treasury Account) 
by setting them as conditions for payment. Ebola seriously hampered the ability of government and donors 
to function during 2014 and 2015. But these or similar conditions were also not included in the most recent 
budget support contract, which was signed in 2015.

44 

IMF Country Report No 14/171, June 2014; Commission macroeconomic eligibility assessment for financing agreement 37419 and information 
received during the mission from authorities and other donors/actors.

45 

IMF Press Release No 16/143, 29 March 2016.

 
Observations 

26

46 
In three cases the specific conditions applied did not produce the expected 
incentive effect (see Box 4) because they had already been achieved when the 
contract was signed, or because they were simply unenforceable. This amounts 
to an ineffective use of DRM specific conditions.

4
x
o
B

Examples of DRM specific conditions with no incentive effect

Conditions already met prior to signature of the Financing Agreement

In the Central African Republic, DRM specific conditions were attached to the second state-building budget 
support contract, signed in 2015. The conditions linked to the first variable tranche for 2015 (1 million euros), 
and relating to the transmission and follow-up of the implementation of action plans for the mobilisation of 
fiscal and customs revenue, were met before the signature of the Financing Agreement on 10 July 2015.

Similarly, in Sierra Leone the variable tranche conditions for 2013 were met before the related Financing 
Agreement was signed.

Country legislation prevented a condition from being met

In Niger, the target set for limiting tax exemptions for the 2013 variable tranche proved impossible as national 
law would not allow the measures described in the indicator.

The conditions related to the elimination of income tax exemptions on profits made and the deletion of a de-
ductibility clause in connection with the taxation of mining companies.

Both conditions would have required changes in the transposition of the West African Economic Monetary 
Union Mining Code, which was not feasible at such short notice (1 year after signature of the Financing Agree-
ment). These legal difficulties were not identified during the design phase of the budget support contract.

 
Observations 

Monitoring of DRM conditions

47 
The financing agreements implementing the five audited budget support 
contracts with DRM specific conditions (see Table 4) included arrangements 
to monitor and assess whether those conditions were met. Details varied from 
one contract to another. In four cases they were sufficiently well defined for the 
Commission to perform an objective assessment of the partner country’s compli-
ance with the conditions. However, the contract with the Central African Republic 
did not include adequate arrangements for monitoring by the Commission (see 
Box 5).

48 
Since the entry into force of its new guidelines, the Commission has produced 
an annual budget support report46. The objective is to provide an overview of 
the implementation of EU budget support contracts. We examined the extent to 
which the annual report provides relevant information on DRM. The 2013 pilot 
report had few descriptive elements in this regard: general information on coun-
tries implementing the Extractive Industries Transparency Initiative (EITI)47 and 
the revenue ratios for every country where budget support contracts were being 
implemented.

27

46  DG International Cooperation 
and Development ‘Budget 
support — financial 
implementation, risk 
assessment and selected 
macroeconomic and fiscal 
country results (pilot report)’, 
2013.

47  The Extractive Industries 

Transparency Initiative (EITI) is 
a global standard to promote 
open and accountable 
management of natural 
resources. Countries 
implement the EITI standard 
to ensure full disclosure of 
taxes and other payments 
made by oil, gas and mining 
companies to governments.

5
x
o
B

Examples of good and weak practices concerning the monitoring of DRM-specific 
conditions

In Mali, clear monitoring arrangements were set for the DRM specific conditions in the second state-building 
budget support programme. For each indicator/sub-indicator, the Financing Agreement included detailed 
information, such as a full indicator description, baselines, targets, sources for verification, the responsible 
services and the date on which data were expected to become available. There were similar positive features 
in the contracts with Niger and Sierra Leone (two contracts).

In the budget support contract concluded in 2015 with the Central African Republic, the Commission agreed 
with the government that it would verify compliance with the DRM conditions48 by way of transmission let-
ters and implementation reports on the action plans of two directorates-general. However, as the Financing 
Agreement set no targets or baselines for the agreed indicators, proper follow-up was impossible because 
there was no standard against which to compare achievements. In particular, the Commission did not formu-
late requirements regarding the quality of the action plans or what proportion of the plans should be imple-
mented for the indicators to be considered achieved.

48  First variable tranche for 2015: transmission and follow-up of the implementation of action plans for the mobilisation of fiscal and customs 

revenue in 2015. Second 2015 VT: follow-up of the implementation of action plans for the mobilisation of fiscal and customs revenue in 2015 and 
drafting of action plans for the mobilisation of fiscal and customs revenue in 2016.

 
28

49  Through its Creditor Reporting 
System (CRS), the OECD’s 
Development Assistance 
Committee has devised 
a series of ‘purpose codes’ to 
be used by donors when 
reporting their aid flows to the 
relevant OECD database, 
which can then be used to 
produce statistical information 
on aid flows. Since 2014, 
a ‘dummy’ code 15114 has 
been used for voluntary 
reporting on tax policy and 
tax administration support.

Observations 

49 
Although subsequent reports have had more detailed information, there is still 
too little about budget support contracts with DRM specific conditions. For in-
stance, no financial information is provided on programmes targeting DRM. The 
appropriateness of the EU’s reporting on its support for DRM is undermined by 
the fact that there is no specific compulsory DAC code49 relating to tax policy and 
tax administration. Consequently, no comprehensive information is available on 
the totality of Commission funding for DRM through budget support and other 
forms of aid.

Policy dialogue was generally well coordinated, but its 
effectiveness as a tool for DRM support was undermined by 
weak strategic focus and challenging local circumstances

50 
The Commission views policy dialogue as a core element of budget support. 
Effective dialogue should draw on the eligibility and risk assessments described 
in the previous section of this report, while also taking into account the dialogue 
undertaken by other donors. The budget support guidelines require a ‘rolling 
dialogue strategy’ to identify the most effective dialogue methods and platforms 
and a programme of action. The guidelines also state that ‘policy dialogue should 
focus on tax policy, tax administration and revenues, including from natural 
resources’.

51 
We assessed whether the Commission used a dialogue strategy based on its as-
sessments of DRM challenges and risks, and whether that strategy included all 
the requirements mentioned in the guidelines. We also examined the frequency, 
appropriateness and effectiveness of the dialogue, and how it is documented 
and coordinated with the main actors in the field.

The Commission did not develop dialogue strategies

52 
Policy dialogue often takes place in a challenging context. The ownership of 
and degree of commitment to revenue reforms may change as new govern-
ments come to power or unexpected developments occur. Staff turnover at the 
Commission’s delegations also poses a difficulty in terms of the continuity of 
dialogue. Therefore, a dialogue strategy with clearly listed objectives is essen-
tial to track progress and address issues identified as essential. Such a strategy 
would encompass, for instance, the issues to be followed in the period ahead, the 
responsibilities of delegation staff, the main interlocutors to be approached, the 
platforms on which issues should be addressed, an indicative timetable and the 
expected outcomes.

Observations 

29

53 
We found that the Commission had not developed strategies for policy dialogue 
where it had identified specific DRM issues to be tackled50. This was true even in 
partner countries like Sierra Leone, where the Commission had identified DRM as 
a high risk for the achievement of budget support objectives.

50  Budget support guidelines, 
September 2012, p. 42: ‘A 
rolling dialogue strategy 
should (…) identify the most 
effective dialogue methods 
and platforms, and 
a programme of action’.

54 
Although the Commission’s PFM eligibility assessments, financing agreements 
and other preparatory documents mentioned the fora in which policy dialogue 
was to take place (e.g. joint government–donor coordination meetings), the 
issues to be tackled were presented in general terms only. In the absence of dia-
logue strategies, it is difficult to objectively assess whether this budget support 
component has effectively contributed to DRM reforms.

55 
We found that DRM policy dialogue was more focused when it was accompanied 
by specific conditions (Central African Republic, Mali, Niger and Sierra Leone), 
since identifying, negotiating and, subsequently, monitoring these conditions 
necessitated extensive discussion with the partner countries. In the remaining 
audited countries, dialogue took place in a much broader context, such as the 
PFM reform process, where DRM was just one of many areas for discussion (see 
paragraph 40). In fact, the discussion of PFM reforms did not necessarily guaran-
tee thorough coverage of DRM (see the example in Box 6).

6
x
o
B

PFM dialogue did not always guarantee thorough coverage of DRM

In Mozambique, policy dialogue took place through a coordination group which debated general issues of 
PFM. Given the broad scope of PFM, some specific and technical aspects were discussed by a number of sub-
groups, including a taxation sub-group dealing specifically with DRM issues such as fiscal risk and revenue 
from natural resources.

As the EU’s budget support contract in Mozambique did not contain DRM specific conditions in the variable 
tranche, the Commission did not participate in the taxation sub-group where the country’s performance in 
DRM was closely monitored. This obviously reduced the Commission’s involvement in this area, because in the 
meetings of the PFM group attended by the Commission only the main conclusions from the taxation sub-
group were discussed.

 
Observations 

Dialogue was generally well coordinated with development partners but 
did not take place on a regular basis due to difficult country contexts

56 
In the partner countries the Commission worked closely with other donors 
providing budget support51. Donors met or communicated52 in advance of joint 
planning or review meetings at which they presented and discussed their posi-
tions and aligned their views. The Commission’s analysis of the macroeconomic 
and fiscal situation, major weaknesses, the progress of reforms and the success of 
government efforts was usually in line with the assessments given by the IMF and 
by other actors present in the country concerned.

57 
In the Central African Republic, Niger and Sierra Leone53, the policy dialogue 
necessary to assess government compliance with the DRM specific conditions did 
not take place on a regular basis owing to difficult country circumstances. This 
undermined the potential of this component as a tool for rapidly identifying and 
addressing unsatisfactory progress (see Box 7).

30

51 

In Mauritania the EU was the 
only donor providing budget 
support, but PFM issues were 
discussed and coordinated 
among all donors.

52 

In Senegal, donors use 
a dedicated website to 
communicate.

53  At the time of our audit, the 
Commission had not yet 
assessed Mali’s progress 
against the relevant 
DRM-specific conditions, as 
these applied only to the 
variable tranches for 
2016 and 2017.

7
x
o
B

Examples of dialogue which did not take place on a regular basis

In the Central African Republic, policy dialogue arrangements established in 2010 had not been functioning 
since the beginning of the political crisis in 2012. In March 2014, a committee was set up to monitor the public 
finance reform (which included DRM measures). Although donors reminded the authorities of their responsi-
bilities on several occasions, the committee met only once, at the end of 2014. The committee’s responsibili-
ties and the process of dialogue concerning the government’s compliance with the two DRM specific condi-
tions in the 2015 variable tranche therefore had to be taken over by the treasury committee, though this was 
not in its terms of reference.

In Sierra Leone, during 2014-2015, the policy dialogue could not be sustained due to the Ebola crisis. Further-
more, an evaluation of budget support provided in the country during 2002-201554, concluded that revenue 
administration reforms were not actively supported by high-level dialogue and commitment in the same way 
as some other areas which saw greater progress (EITI, Free Health Care Initiative). Overall, revenue administra-
tion was under-emphasised in the process of dialogue on the performance assessment framework.

In Niger, despite repeated requests by the donor community, the budget support coordination group has not 
been operational so far due to disagreement between two ministries on the allocation of donor coordination 
responsibilities. There was no common framework for monitoring the progress made in the achievement of 
conditions. The Commission also acknowledged that it had difficulties in obtaining meetings with govern-
ment representatives and reported that donor recommendations were not followed up. By agreement be-
tween the government and the Commission, the variable tranche for 2013 included a DRM condition requiring 
measures which were unenforceable in national law (see Box 4). In this case, policy dialogue did not identify 
this problem.

54 

Independent Evaluation of Budget Support to Sierra Leone in 2002-2015 (Final Report April 2016).

 
Observations 

31

The capacity development component of budget support 
contracts seldom targeted DRM

58 
Administrative capacity is a crucial part of effective revenue mobilisation in sub-
Saharan Africa. Although the capacity development component of budget sup-
port is relatively small compared to other means used by the Commission to ad-
dress capacity needs in DRM, the budget support guidelines identify tax reforms, 
tax administration and management of natural resources as capacity development 
areas of particular importance. We assessed to what extent the Commission ad-
dressed DRM capacity needs through its budget support contracts.

59 
Budget support was provided for capacity development in the broader area 
of PFM, which may also include direct or indirect support for DRM (see para-
graph 40). Nine of the 15 contracts audited, in six countries (Cape Verde, Central 
African Republic, Mali, Mauritania, Niger and Sierra Leone), allocated a total of 
60.4 million euros to capacity development, which represented 4.8 % of the total 
amount committed in budget support. However, in the framework of budget 
support the Commission specifically earmarked very little funding for capacity 
development in DRM — of the contracts we examined only one targeted capac-
ity development with support totalling 3 million euros. Box 8 gives details of the 
limited use of budget support for capacity development in DRM.

8
x
o
B

Limited support for capacity development in DRM

In the Central African Republic, many donors have a programme of technical assistance with which to help 
the transitional government restore the basic functioning of public finances. Budget support contract 37458 
included 3 million euros for implementation of the reforms necessary to secure revenue. This was to be one of 
the three pillars of the contract, the purpose of which was to guarantee the necessary synergies in the fragile 
situation facing the country. The support was intended to complement other ongoing technical assistance 
projects in the area. However, it was never taken up in practice.

 
Observations 

32

The Commission did not have appropriate tools to 
provide evidence that EU budget support contributed 
to improve DRM in partner countries

60 
Since the Commission’s new budget support approach came into effect in 2012, 
this form of aid turned out to be, along with other EU initiatives, an important 
instrument to help partner countries improve their DRM (see Figure 1). In this 
section, we examined whether the Commission uses indicators and evaluation 
techniques which could show whether budget support has actually contributed 
to DRM in the audited countries.

55  This indicator is also used by 
the IMF and World Bank.

56  For a clearer picture, we used 

the ratio for revenue excluding 
donor grants.

57 

IMF Country Report No 
12/323, Fifth Review 2012.

58 

IMF Country Report No 14/148, 
Second Review 2014.

61 
We found that the Commission uses high-level impact indicators. While these 
are appropriate for monitoring overall progress in DRM, they can be influenced 
by many external factors and cannot record outputs and outcomes that were 
specifically induced by budget support. Thus they give no clear indication 
whether budget support contributed to DRM, either positively or negatively, in 
the audited countries.

62 
One standard indicator used by the Commission to assess DRM progress is the 
revenue-to-GDP ratio55, which shows revenue collected in relation to a country’s 
economic performance. We analysed how this indicator evolved during 2007-
2014. Although the ratio increased during this period in six of the nine audited 
countries56 the values show no obvious change from end 2012 when the new 
approach came into effect (see Figure 2). Nevertheless, the values of this indica-
tor cannot be linked to budget support or to any other donor action because it is 
influenced by many factors. For example, in Mauritania, the indicator increased 
significantly from 2011 to 2012, mainly due to high mining revenue from record 
exports in 201157. This contrasted with the Central African Republic, where, due 
to the political and security crisis, the indicator was sharply down after 2012. In 
Mozambique, the variation from 2012 to 2013 was higher than usual, but owing 
mainly to windfall capital gains from the sale of gas concessions58.

Observations 

2 Revenue-to-GDP ratio evolution 2007-2014
e
r
u
g
i
F

30

25

20

15

10

5

0

33

Mali*

Niger*

Mozambique

Senegal

Central African Republic*

Rwanda

Mauritania

Sierra Leone*

Cape Verde

sub-Saharan Africa

2007

2008

2009

2010

2011

2012

2013

2014

*  Countries with DRM indicators.
Source: IMF Regional Economic Outlook, October 2015. Mauritania figures from African Economic Outlook 2012, 2014 and 2016 / European Court 
of Auditors (calculation).

63 
Niger was the only country to experience a relatively consistent positive trend af-
ter 2012. According to the IMF, in 2013 the increase was mainly due to exceptional 
revenue from the oil sector. Developments in most of the other countries were 
more variable during the period.

 
Observations 

34

64 
Another set of indicators used by the Commission to assess improvements in the 
tax system comes from the PEFA framework. We analysed three DRM-specific 
PEFA indicators59 measuring the transparency, registration and collection of 
taxes. These indicators provide information on important aspects of tax policy 
and administration. However, for our purposes they have little informative value, 
as for the period after 2012 (when the new budget support guidelines were 
endorsed) they are available for two countries only (Mauritania and Sierra Leone). 
Table 5 shows an overall improvement between the first and second PEFA assess-
ments — carried out for 2006-2008 and 2010-2012 respectively 60. The situation in 
the two countries for which information is available after 2012 is as follows:

- 

- 

5
e
l
b
a
T

The Mauritania report shows no improvements in any of the three indicators 
compared with 2008.

For Sierra Leone, only the tax collection indicator had improved significantly 
since 2010.

Evolution of PEFA scores

PEFA1 indicator

PI-13 Transparency of taxpayer 
obligations and liabilities

PI-14 Effectiveness of measures 
for taxpayer registration and tax 
assessment

First 
available 
report

Second 
available 
report

Third 
available 
report

First 
available 
report

Second 
available 
report

Third 
available 
report

Cape Verde

2007 - B

Central African Republic2

2008 - D+ 2010 - C

2006 - C+

2010 - B

2007 - A

2008 - D+ 2010 - C

2006 - C

2010 - C+

59  Commission guidelines, p. 37: 
‘The Commission uses the 
PEFA-PFM Performance 
Measurement Framework as 
the preferred tool to assess the 
quality of the PFM system in 
a country. The PEFA-PFM 
Framework measures the 
operational performance of 
the PFM system using 
28 indicators spread over six 
core dimensions, and 
evaluates the likely impact of 
PFM weaknesses on three 
levels of PFM budgetary 
outcomes in the medium-
term.’ Tax administration is 
covered in the PEFA 
framework by four indicators 
that assess ‘aggregate revenue 
outturn compared to original 
approved budget’ (PI-3), 
‘transparency of taxpayer 
obligations and liabilities’ 
(PI-13), ‘effectiveness of 
measures for taxpayer 
registration and tax 
assessment’(PI-14) and 
‘effectiveness in collection of 
tax payments’ (PI-15).

60  The most recent year of PEFA 
evaluation varies by country 
from 2007 to 2014.

PI-15 Effectiveness in collection of 
tax payments

Second 
available 
report

Third 
available 
report

First 
available 
report

2007 - D+

2008 - D+ 2010 - D+

2006 - C+

2010 - C+

Mali2

Mauritania

Mozambique

Niger2

Rwanda

Senegal

2008 - B

2006 - B

2008 - C

2007 - A

2007 - B

2014 - B

2008 - C+

2008 - B+ 2010 - A

2006 - C+

2008 - B

2014 - C

2010 - A

2008 - D+

2014 - D+

2006 - D+ 2008 - D+ 2010 - C+

2012 - C+

2010 - A

2011 - B

2008 - C

2012 - C

2007 - B+ 2010 - A

2007 - C+

2011 - B

2008 - D+ 2012 - D+

2007 - D+ 2010 - D+

2007 - 

2011 - D+

Sierra Leone2

2007 - C+

2010 - B

2014 - B

2007 - C

2010 - B

2014 - B+

2007 - D+ 2010 - D+ 2014 - B+

1 

 The PEFA framework assesses and reports on the strengths and weaknesses of public financial management, currently using 31 performance 
indicators that are further disaggregated into 94 dimensions. The performance of each indicator and dimension is measured against a four 
point ordinal scale from A to D.
2  Countries with DRM indicators.
Source: European Court of Auditors.

 
35

61  Review of budget support 
evaluations, Danida (2014); 
and 2000-2011 budget 
support review, Policy and 
Operations Evaluation 
Department (IOB), Ministry of 
Foreign Affairs, Netherlands.

62 

Independent Evaluation of 
Budget Support to Sierra 
Leone 2002-2015, p. 73.

Observations 

65 
The above findings demonstrate that the DRM specific high-level indicators 
used by the Commission do not provide sufficient relevant information about 
the relative contribution of the budget support to DRM in the audited countries. 
These observations are consistent with other recent evaluations of this means of 
delivering aid, which were unable to prove any substantial impact, either posi-
tive or negative, on the level of DRM. An evaluation carried out by Denmark’s 
development cooperation Danida, published in 2014, reviewed several country 
studies, specific evaluations and thematic studies of budget support contracts. It 
found that ‘budget support operations do not appear to have had any significant 
impact on the level of domestic revenue collection’. For its part, the Policy and 
Operations Evaluation Department (IOB) of the Dutch Ministry of Foreign Affairs 
concluded in 2011, along the same lines, that there is no evidence that budget 
support ‘has had a positive effect on tax revenue’61.

66 
Similarly, an evaluation of budget support provided during 2002-2015 in Sierra 
Leone was insufficiently conclusive about the impact on DRM: ‘the relationship to 
budget support looks a priori to be weak’62. The evaluation also noted that ‘It has 
not proven possible to show causation with regard to the disincentives budget 
support might generate for revenue mobilisation’.

67 
To demonstrate whether budget support contracts have a direct impact on DRM, 
it would be necessary to develop appropriate data-collection tools and to as-
sess specific areas of a tax system in detail, with a comparison over time and the 
attribution of progress achieved to individual components of budget support. 
One such tool is TADAT (see paragraph 24), which provides specific assessment of 
countries’ tax administration systems, processes, and institutions. However, this 
instrument is still being piloted: so far, key components of tax systems have been 
assessed for 17 countries.

Conclusions and 
recommendations

36

68 
Domestic revenue mobilisation (DRM) refers to the generation of government 
revenue from domestic resources, from tax or non-tax sources. Improving the 
DRM of developing countries is a crucial factor in their sustainable development; 
as such it has become a priority of EU development policy. The EU supports DRM 
in these countries through several aid modalities, including budget support. 
Approximately 20 % of EU development funding is channelled through budget 
support, sub-Saharan Africa being the largest recipient. Improved DRM was one 
of the five key development challenges addressed by the Commission’s new ap-
proach to budget support, adopted in 2012.

69 
Through this audit, we examined whether the Commission effectively used budg-
et support contracts to support DRM in low- and lower-middle-income countries 
in sub-Saharan Africa. We found that the Commission’s new approach increased 
the potential of this form of aid to effectively support DRM, but planning and 
implementation weaknesses prevented that potential from being fully exploited. 
Furthermore, our analysis of the available data and evaluations revealed a lack 
of appropriate monitoring tools to provide data to assess the extent to which 
budget support contributed to overall improvements in DRM in the audited 
countries. Based on these elements, we conclude that the Commission has not 
yet effectively used budget support contracts to support DRM in low- and lower-
middle-income countries in sub-Saharan Africa.

Conclusions and recommendations 

37

70 
The Commission gave insufficient consideration to DRM when designing its 
budget support operations. While the new approach represents an improvement, 
as it brought improved assessment of DRM in partner countries and an analysis of 
the related risks, this was not always comprehensively done in practice. Country 
assessments are fundamental to the design of budget support, as they help the 
Commission identify the critical issues to be addressed through the disbursement 
conditions, capacity development and policy dialogue that it deploys alongside 
funding. However, the assessments we audited, which were carried out in coordi-
nation with other donors, did not cover essential aspects of tax policy and admin-
istration referred to by the Commission’s own guidelines. Furthermore, key risks 
related to tax exemptions and to the collection and transfer of taxes and non-tax 
revenues from natural resources were not evaluated (see paragraphs 19 to 38).

Recommendation 1 — Strengthen DRM assessments and risk 
analysis

(a)  Before approving new budget support contracts and disbursements, the 
Commission should ensure that DRM assessments are comprehensive and 
consistently implemented. In particular, it should verify that assessments 
cover all the appropriate aspects of tax policy and administration described 
in its budget support guidelines. When the relevant statistics and data are 
not available, this should also be noted in the assessments as it can provide 
valuable information concerning capacity needs in the partner countries.

(b)  The Commission should, with immediate effect, complete its risk assessment 
framework by including risks linked to non-tax revenue and tax exemptions. 
It should extend the sources of information used to answer risk assessment 
question 38, concerning tax revenue, to PEFA indicators PI-14 and PI-15 on the 
assessment and collection of taxes. DRM assessments should also use TADAT 
as a source of information, wherever available.

Conclusions and recommendations 

38

71 
The Commission had made the disbursement of budget support funds condition-
al on the fulfilment of specific DRM reforms in only five of the 15 budget support 
contracts audited. Although the division of labour among donors could be used 
to justify the absence of DRM-specific conditions in budget support contracts, 
we found no evidence that this decision was supported by an assessment of the 
involvement of other donors in this area.

72 
We also found that the specific conditions did not always effectively promote 
DRM reforms, as they were either too easily achievable or unenforceable, thus 
reducing the incentive for partner countries to engage in reform. No DRM-specific 
conditions were attached to good governance and development contracts. This is 
inconsistent with the Commission’s statement that a stronger emphasis on DRM 
should be part of this type of budget support. Overall, insufficient use was made 
of DRM conditions in all types of budget support contract, which does not square 
with the central role supposedly assigned to DRM (see paragraphs 39 to 47).

Recommendation 2 — Strengthen the use of DRM-specific 
disbursement conditions

For future budget support contracts, the Commission should take greater ac-
count of DRM in the specific disbursement conditions linked to variable tranches 
by:

(a)  Strengthening the focus of good governance and development contracts on 
DRM by increasing the use of DRM specific conditions, notably in countries 
where this area is not appropriately addressed through other forms of EU aid 
and/or by other development partners.

(b)  Ensuring that DRM conditions used in variable tranches effectively promote 
DRM, are achievable and enforceable, so that they are more likely to provide 
partner countries with the necessary incentives to advance in the implemen-
tation of their reform agenda.

Conclusions and recommendations 

39

73 
In its annual budget support reports, the Commission provides a useful quantita-
tive overview of the implementation of EU budget support contracts. However, 
although DRM is central to the new budget support approach, the reports give 
too little information about the EU’s support for DRM through this form of aid 
(see paragraphs 48 to 49).

Recommendation 3 — Strengthen reporting on the use of 
budget support to improve DRM

From 2017 onwards, the Commission should provide more information in its 
budget support reports concerning the use of budget support contracts for DRM. 
In particular, the reports could include information about the number, type and 
value of contracts with DRM as specific objective as well as case studies illustrat-
ing the budget support contributions to DRM improvements in partner countries.

74 
Policy dialogue in the area of DRM was more focused when it was accompa-
nied by specific conditions, since identifying, negotiating and, subsequently, 
monitoring these conditions necessitated extensive discussion with the partner 
countries. However, challenging local circumstances meant that policy dialogue 
did not take place regularly, which undermined its potential as a tool for rapidly 
identifying and addressing unsatisfactory progress of the reforms required by the 
conditions. The Commission did not develop strategies for structuring its policy 
dialogue around specific DRM issues, fixed priorities, objectives, interlocutors 
and dates (see paragraphs 50 to 57).

Recommendation 4 — Strengthen the policy dialogue 
component in DRM

The Commission should devise dialogue strategies for future budget support 
contracts, comprising a clear statement of the issues to be addressed (including 
DRM), the interlocutors, the expected results/outcomes and an indicative time-
table. The Commission should subsequently assess how well the objectives of its 
dialogue strategies have been achieved.

Conclusions and recommendations 

40

75 
Administrative capacity is a key aspect of effective revenue mobilisation in sub-
Saharan Africa. The EU’s budget support included very little funding to address 
capacity needs: just 0.2 % of the total value of the audited contracts took the 
form of capacity development funds directly and exclusively earmarked for rev-
enue mobilisation. Moreover, this amount was never used by the partner country 
concerned (see paragraphs 58 to 59).

Recommendation 5 — Strengthen the use of capacity 
development in DRM

For all existing and future budget support contracts with a capacity development 
component earmarked for DRM, the Commission should increase partner coun-
tries’ awareness of the availability of this support and facilitate its use, in particu-
lar to address capacity development needs not yet covered by other donors.

76 
Establishing a direct link between budget support and progress in DRM is cur-
rently not possible. The available data at the disposal of the Commission to follow 
progress in DRM are high-level impact indicators, which can be influenced by 
many external factors. Thus, they cannot capture the induced outputs and out-
comes from budget support. These observations are consistent with other recent 
evaluations of this means of delivering aid, which could not prove any substantial 
impact, either positive or negative, on the DRM level (see paragraphs 60 to 69).

Recommendation 6 — Evaluate the impact of budget support

In its future evaluations of budget support, the Commission should strive to 
provide a clear conclusion (based on more detailed data) on how budget support 
operations could have contributed to improve the mobilisation of domestic re-
sources in the beneficiary countries. In particular, the contribution made through 
DRM specific conditions should be taken into account in the evaluations.

This report was adopted by Chamber III, headed by Mr Karel PINXTEN, Member of 
the Court of Auditors, in Luxembourg at its meeting of 13 December 2016.

For the Court of Auditors

Klaus-Heiner LEHNE
President

 
 
 
Annexes

41

I
x
e
n
n
A

Budget support as a share of total bilateral ODA commitments

Belgium

Czech Republic

Denmark

Germany

Ireland

Greece

Spain

France

Italy

Luxembourg

Netherlands

Austria

Poland

Portugal

Slovenia

Slovakia 

Finland

Sweden

United Kingdom

EU institutions

EU average

EU average without institutions

Source: http://stats.oecd.org.

2010

2011

2012

2013

2014

0.77 %

n/a

6.06 %

2.33 %

14.31 %

2.12 %

5.82 %

2.37 %

0.55 %

0.00 %

2.73 %

1.03 %

0.00 %

1.33 %

n/a

0.00 %

3.25 %

0.38 %

4.06 %

18.20 %

3.63 %

2.77 %

0.72 %

0.00 %

6.08 %

5.08 %

10.76 %

2.78 %

2.82 %

6.25 %

0.04 %

0.49 %

0.78 %

1.78 %

0.00 %

1.16 %

n/a

0.00 %

2.71 %

0.36 %

6.97 %

8.61 %

3.02 %

2.71 %

2.30 %

0.00 %

2.19 %

0.76 %

11.82 %

3.99 %

0.92 %

1.86 %

0.68 %

0.55 %

0.00 %

1.91 %

0.00 %

0.94 %

0.05 %

0.00 %

8.16 %

0.00 %

4.79 %

12.02 %

2.65 %

2.15 %

3.19 %

0.09 %

0.00 %

0.28 %

8.13 %

0.00 %

3.25 %

4.73 %

1.09 %

0.66 %

0.00 %

0.70 %

0.00 %

0.94 %

0.00 %

0.00 %

1.99 %

3.33 %

3.84 %

12.31 %

2.23 %

1.70 %

2.50 %

1.52 %

3.83 %

1.29 %

2.30 %

1.04 %

1.33 %

2.86 %

1.28 %

3.21 %

0.67 %

0.69 %

0.00 %

0.55 %

0.00 %

0.00 %

3.75 %

2.39 %

1.65 %

9.31 %

2.01 %

1.62 %

 
Annexes 

42

I
I
x
e
n
n
A

Countries and budget support contracts selected for the audit1

Country

Cape Verde

Central African Republic

Central African Republic

Mali

Mali

Mauritania

Mozambique

Niger

Rwanda

Rwanda

Rwanda

Senegal

Senegal

Sierra Leone

Sierra Leone

Grand Total

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

Amount com-
mitted 
(euro)

BS contract type

Decision 
reference

Indicators 
in DRM

Conditional on 
DRM  
(euro)

Complementary 
support in BS 
programme 
(euro)

34 000 000

33 000 000

40 000 000

225 000 000

220 000 000

46 000 000

200 000 000

141 000 000

40 000 000

30 000 000

4 000 000

53 500 000

60 050 000

35 920 000

85 000 000

Good governance and 
development

State building

State building

State building

State building

State building

Good governance and 
development

State building

Sector reform

Sector reform

Sector reform

Sector reform

Sector reform

State building

State building

23892

37458

38108

24692

38388

22576

38077

24422

23259

24780

37416

24569

38172

24389

37419

no

no

yes

no

yes

no

no

yes

no

no

no

no

no

yes

yes

0

0

3 000 000

0

16 000 000

0

0

6 000 000

0

0

0

0

0

2 700 000

5 000 000

4 500 000

3 000 000

0

10 000 000

4 000 000

7 300 000

0

11 000 000

4 000 000

2 000 000

0

5 000 000

3 000 000

1 620 000

5 000 000

1 247 470 000

32 700 000

60 420 000

DRM conditions in the selected contracts 

Budget support contracts with no DRM conditions

Budget support contracts with DRM conditions

532 470 000

715 000 000

42.68 %

57.32 %

10

5

66.67 %

33.33 %

Amount committed 
(euro)

%

Number of contracts

%

Type of selected contracts 

Good Governance and Development Contracts

Sector Reform Contracts

State Building Contracts

Amount committed 
(euro)

234 000 000

187 550 000

825 920 000

%

19 %

15 %

66 %

Number of contracts

%

2

5

8

13 %

33 %

54 %

1  Commission table `BS operations commitment and disbursement follow-up in 2014-2015`, data from CRIS, ECA review.

Source: European Commission, European Court of Auditors (calculation).

 
Replies of the Commission 
and the EEAS

43

Executive summary

III
The Commission considers that DRM has been duly reinforced in budget support formulation and implementation. 
Impacts are expected over a medium-term time frame of about 5 to 10 years.

IV
The assessments the Court refers to are useful concepts of domestic revenue mobilisation, some of them (e.g. cost 
and impact of tax exemptions, tax effort) are only available occasionally in research papers and are not systemati-
cally produced by any institution. Assessments done during the preparation of operations have to take into account 
the country context, namely for state building contracts, as well as the availability of data and information.

The Commission considers that DRM has been given due attention in the formulation of budget support operations.

V
Although the Communication and guidelines imply a stronger focus on DRM (one of the five key development chal-
lenges to be addressed), they do not require that each operation has a specific objective related to DRM. The focus 
on DRM depends on the country circumstances, the nature of the operation, and opportunities for improving DRM.

The Commission considers that DRM is systematically assessed in all Budget Support contracts — even if it is not 
a variable tranche (VT) indicator. All indicators in the performance assessment framework, not only the VT indica-
tors, are carefully monitored in the framework of the Budget Support operation. 

VI
The country context and the political sensitivity, as well as the confidentiality of certain aspects have to be taken 
into consideration when preparing the policy dialogue and deciding on the form it will take.

EU Delegation staff have maintained a policy dialogue in very difficult circumstances of countries in crisis. The regu-
larity and form of policy dialogue was adapted to circumstances. 

VII
The EU’s budget support contracts address systematically capacity needs and often support is included in the 
financing agreement. This is complemented by separate capacity development activities financed through projects 
or other operations on regional or global level. In the sample audited only a minor element was directly earmarked 
for DRM, but a very large share of capacity building activities target public finance management which covers also 
DRM.

Providing evidence that budget support contributed to DRM and other objectives is an analytically complex issue 
which the Commission addresses within the framework of the OECD/DAC budget support evaluation methodology.

Replies of the Commission and the EEAS

44

Introduction

02
The Commission acknowledges the prime responsibility of countries themselves to design their revenue systems 
and policies, according to their own economic and political circumstances and choices. These choices have implica-
tions for the width of the tax base. 

The Commission considers that it is up to partner countries to set the level of and balance between direct and 
indirect taxes, the scope of the tax base and the tax burden distribution considering the structure of the economy, 
the potential to generate sustainable revenues, and the country’s social needs. The Commission engages through 
policy dialogue when required.

03
While agreeing on the need to mobilise domestic resources to attain a sustainable path for development, it has 
also to be recognised that tax systems are often considered as a matter of state sovereignty and are thus politically 
sensitive.

Box 1 — Key development challenges addressed through budget support

(5)
The Commission agrees that DRM is one of the key development challenges, but in fragile situations it may not 
always be the immediate priority for political or policy dialogue. Sequencing of reforms is important.

Box 2 — Forms of budget support provided by the European Commission

1. Good governance and development contracts
The number of good governance and development contracts in sub-Saharan Africa, established according to the 
new policy, is 6 out the 17 contracts mentioned. The remaining 11 operations are General Budget Support pre-dat-
ing the new guidelines and different from GGDCs. 

Observations 

19
The guidelines mention useful concepts of domestic revenue mobilisation. Some of these concepts (e.g. cost and 
impact of tax exemptions, tax effort) are estimated only occasionally, in research papers, and not systematically 
produced by any institution. Any assessment will take into account the country context and challenges and the 
availability of data and information.

Replies of the Commission and the EEAS

45

20
The guidelines explain the policy domains including practical tools and academic concepts in an attempt to give 
an as comprehensive as possible a presentation to what could be relevant in terms of DRM assessment. Such an 
assessment will then however have to be undertaken, bearing in mind the country context, the challenges within 
DRM and the availability and accessibility of data and information. These academic concepts are not meant to all be 
systematically used, but when possible. 

21
For State Building contracts please note also the content of Annex 9 para 4.1 at the end where it is clearly stated that 
‘the general principles to assessment of eligibility criteria described in the guidelines also apply to SBC. However 
when assessing the eligibility and the fulfilment of general conditions during implementation, the focus will vary in 
order to adapt on a case-by-case basis to weaknesses inherent to situations of fragility.’ 

And in paragraph 4.2 on the design of SBCs: ‘Experience shows that effective support to countries in fragile situa-
tions means engaging at an early stage and being prepared to stay engaged over the long haul, embracing a phi-
losophy of carefully sequenced reforms tailored to improvements in capacity, helping country authorities deliver 
“quick wins” to the population, and, in this process, building the legitimacy of the state. Such an approach implies to 
take account of what a fragile state or a state in transition can realistically achieve in a given timeframe.’

22
Some of these concepts (e.g. cost and impact of tax exemptions, tax effort) are estimated only occasionally, in 
research papers, and data are not systematically produced by any institution. Any assessment will need to take into 
account the country context, namely when preparing a state building contract, and the availability of data and 
information.

23
TADAT is an important assessment tool of tax administrations that has only been formally released end 2015 and 
used as pilot version in 2014 and 2015. The Commission has played an active and leading role in the design of this 
instrument and is supporting the TADAT secretariat financially in the context of an IMF multi donor trust fund.

25
The guidelines mention also academic concepts in an attempt to give an as comprehensive as possible presentation 
as to what could be relevant in terms of DRM assessment.

‘… information on the overall cost and impact of tax exemptions and an estimate of tax effort’ are analyses which 
are not regularly done even in OECD countries, neither by the IMF nor by any other international organisation. The 
budget support guidelines call for country analyses within the frame of existing information and diagnostics.

Replies of the Commission and the EEAS

46

26
Annex 11 (DRM) of the budget support guidelines highlights that ‘no specific tool to provide a sound analysis exists 
yet to adequately assess tax policies and tax administration capacities. However, several tools and indicators can be 
used to gather insights on tax regimes. In particular, to assess a country’s performance in terms of their ability to 
mobilise domestic revenues, the tax ratio, tax effort and tax system can provide a good indication.’ 

In fact, the IMF sometimes performs calculations of the last-mentioned assessments but they are complex and 
usually rely on rather sophisticated tools (an econometric method called the efficient frontier analysis). That meth-
odology is itself subject to criticism on the grounds that it makes strong assumptions. Typically, running such an 
estimate of tax effort (other related indicators are estimated in the process — linked to a set of critical indicators on 
revenue administrations) requires fielding a mission of experts for 1 or 2 weeks or as the starting work of a resident 
expert. The Commission collaborates closely with the IMF and other international organisations in the attempt to 
understand fiscal reality in partner countries. This expertise is essentially with the IMF and the Commission uses 
data whenever they have been produced in such a research study.

27
The fact that in some cases data has not been available might not have been reported explicitly. However, it is 
implicit in the analysis made of the situation in the country and not repeated annually. 

28
A systematic assessment of staffing and material needs in revenue administration can be pertinent information if 
the Commission is engaging in a direct and comprehensive support programme. However this information is less 
relevant or accessible for the Commission if such support is being provided by other partners. 

Annex 11 of the budget support guidelines mentions the usefulness of information on staffing and material needs 
but this annex provides general background information on domestic revenue mobilisation and brushes a wide 
picture of possible instruments and concepts. 

29
The fight against corruption and fraud is a key concern in the Commission’s budget support. The Commission 
assesses the partner government’s efforts to improve public financial management and fight corruption. A risk 
management framework is used to monitor risks and mitigating measures in a structured way, including on corrup-
tion and fraud. 

The Commission considers that access to information on tax is assessed in the frame of the eligibility criteria on 
transparency and oversight of the budget. It includes a focus on the Open Budget Index and PEFA framework (nota-
bly PI-10 ‘Public access to key fiscal information’). More focused analyses of relevant aspects, such as public avail-
ability of information on tax legislation and tax incentives, are conducted when necessary.

Replies of the Commission and the EEAS

47

30
The Commission supports developing countries on transfer pricing issues at both global and national level. 

The international awareness on these issues has progressively grown during the last years, in particular since 2013 
and the presentation of the G20-OECD comprehensive action plan to address Base erosion and profit shifting (BEPS) 
which is supported on a global level by the Commission and was endorsed by the end of 2015. The Commission sup-
ports further inclusion of developing countries in these high-level international negotiations and it is expected that 
appropriate reporting will be reinforced. 

The Commission also supports regional networks on fiscal matters, the tripartite initiative on transfer pricing as well 
as through IMF initiatives (Regional technical assistance centre, Trust fund on Tax policy administration and Natural 
resources wealth). These are global issues and reported on at this level. Country assessments do not focus on, for 
example the support to the UN tax committee, which aims at giving the developing countries a stronger voice on 
international matters. 

33
The risk management framework (RMF) is an internal management tool, summarising the five categories of main 
risks identified in a country and is not intended as the place for in-depth, comprehensive assessments. The focus on 
DRM will depend on the country circumstances and the nature of the operation.

34
DRM-related issues are covered to some extent in other questions, notably on macro-economic stability, exogenous 
shocks, and fraud and corruption — particularly in questions 21 (fiscal policy), 24 (sustainability of debt), 28 (MTFF), 
33 (annual budget) and 41 (corruption) of the risk questionnaire.

35
The RMF questionnaire also refers to PFM assessments as a source of information. The intention was not to base 
the analysis solely on PI3. Nevertheless, the Commission agrees with the Court and in the latest version of the RMF 
explicit reference has been made to the other PIs in the guidance on sources of information.

36
The risk related to tax collection in Sierra Leone was rated high only in one year, end 2014-2015, right at the end of 
the Ebola crisis. The preceding and the following years, the risk was lower.

38
The RMF focuses on key crosscutting risks for budget support operations. The level of revenue collection has 
a direct impact on macroeconomic stability, debt sustainability, and fiscal buffers. These are important risk areas, 
which are covered by questions 20, 21, 24 and 26 in the RMF. 

Replies of the Commission and the EEAS

48

40
The concept of dynamic approach, endorsed also by the European Council in 2012, implies a global assessment 
of the progress in each of the eligibility criteria. This does imply progress in the sector but not necessarily in each 
sub-sector.

DRM is part of the analysis in the framework of the overall assessments of eligibility criteria (macro-economic sta-
bility and public finance management). The Commission takes into account DRM issues in the frame of the policy 
dialogue with the beneficiary country and of the performance assessment. 

42
See reply to paragraph 40.

The choice of specific indicators is linked to the process and to the outcome of the analysis/assessment/dialogue 
with the beneficiary country on reforms/priorities/importance given to specific elements.

43
It should be noted that in the case of Niger, budget support was provided through a Good Governance and Devel-
opment Contract (GGDC) at the time the DRM conditions were formulated. In order to take account of the sudden 
deterioration of the security and general political situation the GGDC was transformed into a State Building Con-
tract (SBC) in 2015.

44
Each Action document comprises a matrix of donors and their actions. This covers all relevant sectors but not neces-
sarily sub-sectors. 

45
The reforms supported by the Commission in Sierra Leone were related to the reduction of tax arrears, increasing 
filing tax return on time, public disclosure of revenue from extractive industries, submission of National Minerals 
Authority Bill to parliament and publication of mining and exploration licences in online repository. They had a sig-
nificant potential to improve DRM.

Box 3 — DRM-specific conditions not addressing the most relevant reforms
Public availability of data and an increase in transparency as regards the revenues generated by natural resources 
has shown to be one of the most powerful mechanisms for public accountability and revenue recovery based on 
data reconciliation. A programme to support DRM consists of immediately effective actions as well as indirect and 
medium-term actions. This includes also improvements in administrative procedures conducive to better DRM.

The Budget support Synthesis evaluation (September 2014) drawing lessons from seven country evaluations, 
concludes that budget support cannot ‘buy’ reforms. This holds even more to situations that are outside the direct 
control of government. While policy dialogue should address these issues, the inclusion of conditionality on adop-
tion of legislation has not proven to be an effective instrument. 

Replies of the Commission and the EEAS

49

The adoption of the legislative basis of reforms has to precede these reforms. Pushing for the implementation of 
said reforms before the approval of the legislative basis may prove counter-productive. Donors cannot force reforms 
but accompany processes for which a momentum and willingness exists in the partner country. 

During the period covered by the audit report, the most recent budget support operation was prepared during the 
peak of the Ebola crisis combined with a dramatic fall in iron ore revenues. Due to the foreseen increase of fragil-
ity, the nature of the indicators was kept very similar to those of the previous operation. In the current reflection 
regarding the preparation of a next budget support, the Delegation is already taking into account the necessity for 
the multi-donor group to be more demanding towards ongoing reforms.

Box 4 — Examples of DRM-specific conditions with no incentive effect
Budget Support operations and financing agreements are prepared and negotiated during a sometimes consider-
able time span. Therefore the fact that an indicator was reached at the moment of the signature can be seen as 
a positive outcome of the negotiation process and the accompanying dialogue. 

It is regrettable that the legal problem was not properly identified at the moment of the identification of the pro-
gramme, but it has to be recognised that the transposition of the West African Economic Monetary Union Mining 
Code is a complex matter which may engender consequences difficult to foresee. Therefore, single performance 
indicators can be modified or neutralised respecting the current rules. 

Box 5 — Examples of good and weak practices concerning the monitoring of DRM 
specific conditions
The Commission considers that the country context did not allow for more details. The objective pursued was that 
the issue of reforms, i.e. improvement of DRM would remain at the heart of the dialogue with the Central African 
Republic (CAR).

49
A coordinated effort has been undertaken under the Addis Tax Initiative (ATI) and in conjunction with the OECD 
DAC to tackle the issue of reporting on DRM support by development partners. As a consequence, a DRM DAC code, 
separate from PFM, has been created in 2016. A first report on DRM commitments and disbursements, focusing on 
2015, will be put together by the ATI. The Commission is committed to provide accurate and timely data for this ATI 
report.

52
The country context and the political sensitivity, as well as the confidentiality of certain aspects have to be taken 
into consideration when preparing the policy dialogue and the form it will take.

53
The Commission considers that there are good examples of policy dialogue being prepared and executed. For 
example Action documents lay out the topics and expected results for policy dialogue and disbursement files 
explain the next steps. The documentation of policy dialogue is also improving. 

Replies of the Commission and the EEAS

50

54
The dialogue on PFM and Macro-economic stability covers the relevant issues in tax administration and tax policy. 

Data are systematically collected and assessed concerning the evolution of the tax policy and administration as well 
as the evolution of DRM by the partner government and the development partners in the country. High-level indica-
tors are collected and assessed on an international level. 

Possible impacts of an aid modality on DRM need a contribution analysis and are typically and regularly done in the 
framework of an evaluation.

Box 6 — PFM dialogue did not always guarantee thorough coverage of DRM
The Commission considers that tax-related indicators have been and continue to be present in the Performance 
Assessment Framework of Mozambique, which is the monitoring framework for the Budget Support operation. Con-
sequently a DRM-related condition is discussed in this forum, even if it is not a variable tranche indicator or a spe -
cific condition attached to the fixed tranche. 

Division of labour is important in Mozambique, a country with around 15 donors active in PFM, in order to guaran-
tee efficiency and to ensure that the EU can rely on/benefit from the monitoring and policy dialogue of the desig-
nated Member State. 

Furthermore, Commission services in Mozambique are very up to date and active on DRM questions in the country. 
The EU Delegation participates in the briefs/debriefs of the International Monetary Fund Topical Trust Fund Man-
agement of Natural Resource Wealth, in the meetings of the Extractive Industry Working Group (EIWG) and of the 
Budget analysis Group (BAG) which are relevant groups for DRM issues. 

Box 7 — Examples of dialogue which did not take place on a regular basis
The case of the Central African Republic (CAR) has to be seen in the light of the very difficult circumstances at that 
time. The political crisis made any constructive work extremely difficult; moreover most of the Delegation was 
evacuated. It is an achievement that Commission services have managed to set up a dialogue structure and main-
tained a dialogue in the given context. 

The programming document of the cooperation between the EU and Sierra Leone for the period 2014-2020 foresees 
a major emphasis on support to revenue generation. The period audited however covers fully the Ebola crisis and 
revenue administration reforms in Sierra Leone may have been under-emphasised during this latter period. A coun-
try dealing with the Ebola crisis might conceivably put revenue administration reforms on a lower priority.

The disagreement between the ministries involved in budget support went into real politics, beyond policy dia-
logue. It was rather related to balance of power between political parties than to technical issues. The quality of 
policy dialogue is already better and continues to improve, also due to budget support.

Box 8 — Limited support for capacity development in DRM
The Commission plans to contract the capacity development component as programmed in Financing Agreement 
37458, with a target date of 15 February 2017.

Replies of the Commission and the EEAS

51

The revenue authorities are already supported by the IMF, the World Bank and the African Development Bank. 
The absorption capacity of the revenue authorities precludes additional assistance for the time being. The Com-
mission’s support will target revenue mobilisation through the reinforcement of the accountability systems which 
need strengthening. This support will be done on the level of the treasury. On a regional level, the agreement with 
the United Nations Conference on Trade and Development (Unctad) puts in place the customs information system 
Sydonia CEMAC also for the Central African Republic. 

61
Providing evidence that budget support contributed to DRM and other objectives is an analytically complex issue 
which the Commission addressed within the framework of the OECD/DAC country evaluation methodology. 

62
The Commission agrees that the values of the Tax/GDP ratio cannot be linked directly to budget support for the 
reasons the Court gives. Results may be expected over a medium-term time frame of about 5 to 10 years. Possible 
evidence that budget support contributed to DRM and other objectives should be analysed in a proper evaluation.

65
These indicators are monitoring tools. They are not intended to inform with regard to contribution.

Evaluations particularly analyse effects of the budget support operations on the objectives in terms of develop-
mental and sectorial impacts. Evaluations also analyse possible effects in terms of budget financing and domestic 
revenue. However, most evaluations available today cover a period prior to the introduction of the new policy; 
therefore they are not likely to identify impacts of this policy.

66
The ‘Budget support synthesis evaluation’ of seven country evaluations (2014) concluded that ‘Domestic revenue 
generation remained buoyant throughout the evaluation, and there were no signs of disincentive effects resulting 
from budget support’ (p. 75). 

The evaluation of budget support in Sierra Leone quoted by the Court also states clearly: ‘…. genuine and impor-
tant results were achieved through Budget Support in Sierra Leone:

- 

- 

helping to kick-start the growth process and to stabilise the post-war security situation;

stabilising the public finance situation in 2009 during the global financial crisis and in 2014 during the Ebola/ 
Iron Ore crisis ….’

67
Data are systematically collected and assessed concerning the evolution of tax policy and administration, as well as 
the evolution of DRM by the partner government and the development partners in the country. High-level indica-
tors are collected and assessed on an international level. 

Replies of the Commission and the EEAS

52

Demonstration of direct impacts of budget support on policy outcomes in partner countries is methodologically 
complex. The OECD/DAC budget support evaluation methodology is, so far, the only way to (indirectly) conclude on 
possible causal links between budget support and policy outcomes such as impact on DRM. The Commission has 
been actively involved in developing this methodology and has actively promoted the tool through an increasing 
number of multi-donor evaluations undertaken under its leadership since 2011. 

Conclusions and recommendations

69
The Commission underlines that support to DRM is given through a range of actions on different levels, global, 
regional and national. These actions are complementary to support through budget support but were not part of 
the audit scope. The possible contribution of the new budget support policy on the overall improvements on DRM 
may be expected over a medium-term time frame of about 5 to 10 years. The Commission will continue to apply and 
improve the new budget support policy on DRM and will continue to report on progress.

70
The Commission maintains that DRM has been given due attention in the formulation of budget support opera-
tions. Each assessment is undertaken, bearing in mind the country context, the challenges within DRM and the 
availability and accessibility of data and information. Certain concepts and aspects of tax policy and administration 
are not routinely analysed, in line with international practice.

Recommendation 1 — Strengthen DRM assessments and risk analysis

(a)
The Commission accepts the recommendation. DRM should be duly assessed in the formulation and implemen-
tation of a Budget support operation. In light of the 2015 commitments in the frame of the Addis Tax Initiative, 
support to DRM will be further strengthened. DRM assessments have to take into account the country context and 
challenges and the availability of data and information.

(b)
The Commission accepts the recommendation. 

71
The Commission considers that division of labour is systematically analysed in Action documents and their 
implementation. 

As concrete example we would like to refer to Box 6 where the Court refers to the division of labour concerning 
DRM and PFM in Mozambique and the Commission’s reply. 

Replies of the Commission and the EEAS

53

72
The focus on DRM depends on the country circumstances, the nature of the operation, and opportunities for 
improving DRM.

The Commission considers that DRM-related assessments are used in all Budget Support contracts — even if it is 
not a variable tranche indicator. All indicators in the performance assessment framework (PAF), not only the VT indi-
cators, are carefully monitored in the framework of the Budget Support operation. It should be understood that the 
PAF, including the DRM-related indicators, is a key source of verification of government’s performance. It is a main 
element of the basis to assess the general conditions and decide about the Budget Support release.

Recommendation 2 — Strengthen the use of DRM-specific disbursement conditions

(a)
The Commission accepts the recommendation. 

(b)
The Commission accepts the recommendation. Efforts will be made to formulate better performance indicators, 
including for the DRM. However, as evidenced by a number of evaluations the Commission considers that reforms 
must be genuinely owned by governments and can then be usefully supported. 

Recommendation 3 — Strengthen reporting on the use of budget support to improve 
DRM
The Commission accepts the recommendation. More information on DRM will be provided in its future annual 
budget support reports as well as through the reporting on the implementation of the Addis Tax Initiative. 

Case studies, mainly in the form of evaluations, will be done to better communicate budget support’s contribution 
to DRM.

74
The country context and the political sensitivity, as well as the confidentiality of certain aspects have to be taken 
into consideration when preparing the policy dialogue and deciding on the form it will take. The Commission con-
siders that there are good examples of well-structured policy dialogue.

Recommendation 4 — Strengthen the policy dialogue component in DRM
The Commission accepts the recommendation. Better guidance on policy dialogue in the framework of budget sup-
port will be integrated in the upcoming revision of the budget support guidelines. The outcomes of policy dialogue 
are and will be an important part of any evaluation. Nevertheless, the Commission would like to stress the political 
sensitivity of tax reform and political objectives and therefore maintains that dialogue strategies will be formulated 
protecting also the Commission’s interests. 

Replies of the Commission and the EEAS

54

75
The Commission underlines that DRM is part of macro-economy (fiscal policies) and public finance management 
(tax and fiscal administration notably). Support to DRM capacity building complementing budget support is part of 
larger capacity building actions. Furthermore, the Commission considers that support to DRM, including capacity 
building, is given through a range of actions on different levels. 

Recommendation 5 — Strengthen the use of capacity development in DRM
The Commission accepts the recommendation.

76
Data are systematically collected and assessed concerning the evolution of tax policy and administration, and the 
evolution of DRM by the partner government and the development partners in the country. Higher level indicators 
are collected and assessed on an international level. 

Demonstration of impacts of budget support on policy outcomes in partner countries is methodologically complex 
and is being done in the frame of an evaluation. The Commission has undertaken an increasing number of multi-
donor country evaluations since 2011. 

Recommendation 6 — Evaluate the impact of budget support
The Commission accepts the recommendation. Demonstration of impacts of budget support on policy outcomes in 
partner countries is methodologically complex. The OECD/DAC budget support and country evaluation methodol-
ogy is, so far, the only way to conclude on the contribution of budget support to policy outcomes such as improved 
DRM. The Commission will strive to analyse the point in due time.

HOW TO OBTAIN EU PUBLICATIONS

Free publications:

(cid:127) 

one copy: 
via EU Bookshop (http://bookshop.europa.eu);

(cid:127)   more than one copy or posters/maps: 

from the European Union’s representations (http://ec.europa.eu/represent_en.htm);  
from the delegations in non-EU countries (http://eeas.europa.eu/delegations/index_en.htm);  
by contacting the Europe Direct service (http://europa.eu/europedirect/index_en.htm) or  
calling 00 800 6 7 8 9 10 11 (freephone number from anywhere in the EU) (*).

(*) 

The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you).

Priced publications:

(cid:127) 

via EU Bookshop (http://bookshop.europa.eu).

Event

Adoption of the Audit Planning Memorandum/Start of audit

Official sending of draft report to Commission (or other auditee)

Adoption of the final report after the adversarial procedure

Commission’s (or other auditee’s) official replies received in all languages

Date

6.10.2015

31.10.2016

13.12.2016

17.1.2017

 
The generation of government revenue from tax or non-tax 
sources is a crucial factor for sustainable development and 
as such, is a priority for EU development policy. By adopting 
a new approach to budget support in 2012, the Commission 
increased the potential of this form of aid to improve 
domestic revenue mobilisation. In this report we conclude 
that, despite recent improvements, the Commission has not 
yet effectively used budget support contracts to support 
revenue mobilisation in the audited countries. The 
Commission did not systematically consider some essential 
aspects of tax policy and administration when designing 
and implementing its budget support operations, and the 
number and quality of the disbursement conditions applied 
in this area were insufficient. Furthermore, our analysis 
revealed weaknesses in the reporting on the use and 
contribution of budget support to improve domestic 
revenue mobilisation.

EUROPEAN
COURT
OF AUDITORS